Morgan Stanley chief warns investment banking may not recover until next year

Morgan Stanley boss James Gorman has warned that funding banking revenues might not get well till subsequent yr after the Wall Avenue group’s web earnings fell nearly a fifth within the first quarter.

A protracted slowdown in funding banking exercise has hit Morgan Stanley and its rivals as monetary turmoil following the collapse of US regional lenders and Credit score Suisse in Europe saved dealmakers on the sidelines.

Gorman advised analysts on Wednesday that mergers and acquisitions in addition to debt and fairness underwriting exercise “stay very subdued” however argued these revenues would return ultimately.

“Already, we’re seeing a rising M&A pipeline and a few spring-like indicators of latest issuance rising. That stated, it largely stays a again half 2023 and full yr 2024 story,” Gorman stated throughout the financial institution’s first-quarter earnings name.

Progress in its wealth administration division, which had been central to Gorman’s success in boosting the inventory worth, failed firstly of 2023 to select up the slack from the funding banking slowdown.

Morgan Stanley shares had been down round 0.6 per cent in late-morning buying and selling in New York.

Internet earnings relevant to shareholders totalled $2.98bn within the first quarter, down 19 per cent from the identical interval final yr. Analysts had forecast quarterly web earnings of $2.92bn, in accordance with information compiled by Bloomberg.

Morgan Stanley’s funding banking revenues fell 24 per cent to $1.2bn, barely forward of analysts’ estimates of $1.1bn and in keeping with related drops on the different giant Wall Avenue banks.

Income from mounted earnings buying and selling, which up to now 12 months has benefited from central banks’ aggressive rate of interest rises and market volatility across the warfare in Ukraine, was down 12 per cent at $2.6bn.

This beat analysts’ estimates for $2.4bn however nonetheless lagged behind rivals JPMorgan, Citigroup and Financial institution of America the place revenues had been both flat or up. Goldman Sachs on Tuesday reported that mounted earnings buying and selling revenues had been down about 17 per cent.

Line chart of Fixed income trading revenues in $bn showing Some Wall Street banks benefit from fixed income trading boom more than others

The financial institution’s wealth administration division made $6.6bn in income within the first quarter, a achieve of 11 per cent from the identical interval final yr and forward of analysts’ expectations. The division additionally pulled in $110bn in web new belongings throughout the quarter.

In recent times, Gorman has grown Morgan Stanley’s cash administration operations with offers for ETrade and Eaton Vance, and he advised analysts on Wednesday that “we’ll do extra acquisitions”.

“There is no such thing as a doubt about that in any respect. And it will likely be within the wealth and asset administration house and we continuously hold a listing of who’s engaging and who could be an excellent match,” he stated, earlier than including that there was “nothing imminent”.

Morgan Stanley stated deposits, which had been a serious focus for traders following the collapse of Silicon Valley Financial institution in March, fell 3 per cent to $340.9bn, from $350.6bn final quarter. A lot of Morgan Stanley’s deposits are from wealthier shoppers who are typically much less sticky and extra more likely to pull their funds in quest of a greater fee.

Morgan Stanley chief monetary officer Sharon Yeshaya advised the Monetary Instances that the collapse of SVB triggered a motion out of deposits and into merchandise similar to cash market funds and US Treasuries however that many of those belongings nonetheless remained with the financial institution.

Income had been hit by the financial institution quadrupling its provisions for potential credit score losses to $234mn, up from $57mn a yr in the past, which it stated was primarily associated to industrial actual property and deterioration within the macroeconomic outlook.

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