NEW YORK-- Morgan Stanley's profit surpassed estimates on a bumper third quarter for investment banking that had also buoyed rivals, sending its stock to a record. A revival in corporate debt issuance, initial public offerings (IPOs) and mergers has bolstered profits for Wall Street banks this year.
As markets hover near record highs and the U.S. Federal Reserve begins its policy-easing cycle, bankers expressed optimism that mergers and acquisitions (M&A) will continue to recover after a two-year drought. "I'm bullish on IPOs and M&A coming back," Morgan Stanley CEO Ted Pick told analysts on a conference call. "It may take some time, and the size of the companies when they come will be likely larger." The bank's stock rallied 7.6% to a record high of $120.80 in morning trading. It was last up 6.9%. Morgan Stanley's profit jumped to $1.88 per share, exceeding analyst views of $1.58, according to estimates compiled by LSEG.
Investment banking revenue jumped 56% in the third quarter. Competitor Goldman Sachs had posted a 20% surge in fees, while JPMorgan Chase saw a 31% gain. "The company is executing very well across all the segments," said Macrae Sykes, a portfolio manager at Gabelli Funds. "Ted Pick has quickly built a leadership presence and confidence from investors." Across the industry, global investment banking revenue rose 21% in the first nine months of the year, led by a 31% surge in North America, according to data from Dealogic. Morgan Stanley earned the fourth-highest fees globally over the same period, the data showed.
It was a lead underwriter on big initial public offerings in the quarter, including by cold storage giant Lineage and airplane engine maintenance services provider StandardAero. "We are seeing a rise in equity capital markets activity led by financial sponsors, not only for IPOs in the U.S., but also in Europe," Chief Financial Officer Sharon Yeshaya said in an interview.
The institutional securities business, which houses investment banking and trading, generated revenue of $6.82 billion, compared with $5.67 billion a year ago. Equity trading revenue was another bright spot, jumping 21% as stocks rallied. Fixed-income revenue rose 3%. The investment bank's profit climbed to $3.19 billion from $2.41 billion a year earlier.
