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The biggest US banks generated more than $36bn from their Wall Street arms in the latest quarter, as debt deals and volatile financial markets powered rebounds in investment banking and stock trading.
Morgan Stanley on Wednesday rounded out quarterly earnings from the country’s six largest banks by assets, reporting a 32 per cent increase in net income from a year earlier, to $3.2bn.
Results from the sector consistently outperformed analysts’ expectations, with investment banking notching up the greatest gains from last year.
The five largest US investment banks — a group that also includes JPMorgan Chase, Goldman Sachs, Bank of America and Citigroup — generated combined investment banking revenues of $8bn in the quarter, 31 per cent higher than a year ago.
At Morgan Stanley, investment banking fees increased more than 50 per cent to $1.5bn, a larger increase than any of its rivals.
Investment banking is recovering from a fallow two years, after the Federal Reserve’s move to lift interest rates from rock-bottom levels in early 2022 choked off a boom.
In the latest quarter, the banks made their biggest gains in debt underwriting, with equity deals and corporate advisory work slower to rebound.
Morgan Stanley chief executive Ted Pick said he was “bullish” on a recovery of initial public offerings and mergers and acquisitions.
“I think there is a going public phenomenon that will exist around the world,” Pick said. “Whether it’s select countries doing privatisations, whether it’s exciting companies that, for the first time, are reaching global benchmarks.”
Morgan Stanley shares were up almost 8 per cent in morning trading to a record high.
Stock trading increased across all five of the large US investment banks, boosted by rising markets in the US, volatility in Japan and China’s stimulus programme at the end of the third quarter.
Across the banks, revenues from stock trading were up by more than a fifth on the same quarter in 2023, to $12.4bn.
In contrast revenues from the banks’ fixed income trading units — which include bonds, currencies and commodities trading — fell 2 per cent to $16bn, as bets on the path for US interest rates failed to entirely offset declining activity in commodities.
Outside its investment bank, Morgan Stanley’s wealth management business in the latest quarter attracted almost twice the figure for net new assets of a year ago. It brought in $64bn in the third quarter, and has almost $6tn in client assets.
However, Morgan Stanley’s clients have been keeping a higher proportion of their wealth in cash, which can be less lucrative for banks.
Morgan Stanley chief financial officer Sharon Yeshaya told the Financial Times that clients’ cash levels had settled from the elevated levels of the coronavirus pandemic but were still higher than before the first Covid-19 outbreak.
