Morgan Stanley profits rise amid Wall Street deal boom

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Morgan Stanley said Thursday that second-quarter profits rose 10% from a year earlier, thanks to a boost in fees from deal making and advising wealthy clients.

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The New York-based bank reported profit of $3.51 billion, or $1.85 a share, on revenue of $14.76 billion. That exceeded the consensus estimates of analysts polled by FactSet of per-share earnings of $1.66 on revenue of $13.97 billion.

Like the other big banks that reported earnings this week, Morgan Stanley delivered strong results across several business lines on the back of corporate America’s rapid rebound this spring. Yet calmer markets, especially compared with the frenzied second quarter of 2020, dampened trading revenue, albeit to levels that are still high by historical standards.

At Morgan Stanley, investment-banking revenue increased 16% to $2.38 billion, driven by 44% rise in fees on advising on mergers. Morgan Stanley’s investment bankers in Europe and Asia had their best period in more than a decade, and deal activity was higher across a variety of industries, including technology, health care, financial services and real estate.

Revenue at Morgan Stanley’s wealth-management division increased 30% to $6.1 billion. The bank attracted $71 billion in net new assets, more than triple last year’s second quarter. Growth came from do-it-yourself investors that use the bank’s E*Trade brokerage, clients of Morgan Stanley’s financial advisers, and employees of companies where Morgan Stanley administers stock plans, a business bolstered by two recent acquisitions.

"We kind of are creating – not to be arrogant about it – but a new mousetrap," chief executive James Gorman said on a conference call with analysts. "Every now and then in business you look and you sort of see a wave coming and you catch the wave, and it’s a beautiful thing."

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Meanwhile, trading revenue fell 20% to $4.51 billion, thanks to a 45% drop in bond-trading revenue, partially offset by a 8% increase in stock-trading revenue. That caused overall revenue in its institutional securities division to decline by 14%.

Trading activity among individual investors at Morgan Stanley’s E*Trade unit helped offset some of the pullback in activity among big money managers. The number of retail-trading clients at Morgan Stanley increased 3% over the course of the second quarter to 7.4 million and the average daily number of retail trades the company handled for the quarter exceeded 1 million.

Retail-trading levels declined about 36% from the first quarter at the height of meme-stock mania but are still above their full-year 2020 averages, said Sharon Yeshaya, Morgan Stanley’s new finance chief.

At Morgan Stanley’s investment-management division, revenue nearly doubled, helped by the recent acquisition of Eaton Vance Corp.

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Unlike other banks that have reported weak demand for loans among their consumer and commercial clients, Morgan Stanley boosted lending by 21% to $320 billion outstanding. The volume of loans backed by clients’ securities portfolios and other collateral, a popular product among rich Americans, expanded 43% to $75.8 billion.

Operating expenses increased 12% to $10.12 billion thanks in part to a 6% increase in compensation and benefits. Morgan Stanley’s second-quarter compensation expense of $6.42 billion was 44% of revenue, a similar ratio from a year earlier.

Morgan Stanley’s return on tangible equity, a measure of how profitably it puts shareholders’ money to use, was 18.6% on an annualized basis for the quarter. That is above the bank’s long-term profitability target.

Shares in Morgan Stanley are up 35% since the start of 2021 and hit an all-time high of $93.96 last month. It recently announced plans to double its quarterly dividend and buy back up to $12 billion of stock in the following year.

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