Morgan Stanley’s results from investment banking cratered as turbulent markets dealt another blow to the capital-markets business as firmwide revenue fell short of estimates.
The company’s investment-banking group posted $1.28 billion in revenue in the third quarter, down 55% from a year earlier. Revenue from Morgan Stanley’s trading business rose slightly, with fixed income surging 33%. The firm benefited from rising rates, which boosted net interest income in its wealth-management business to $2 billion.
The Federal Reserve’s resolve to quell inflation along with fears of a looming recession have torpedoed markets. That’s proved particularly painful for investment bankers, with their clients putting off stock and debt sales while waiting for a warmer reception from investors.
“This is a strong and stable result in a difficult environment,” Chief Financial Officer Sharon Yeshaya said in an interview.
Morgan Stanley shares have dropped 19% this year. The stock fell 3.6% to $76.48 at 7:49 a.m. in early New York trading.
Trading revenue totaled $4.64 billion, slightly short of the $4.65 billion average estimate. That was led by the jump in fixed-income revenue, which surged to $2.18 billion.
Revenue from equity underwriting collapsed 78% to $218 million, while debt underwriting slumped 35% to $366 million. The slump also hit mergers-and-acquisitions bankers, with advisory revenue dropping 46%.
The New York-based firm is also leading the effort to provide financing for Elon Musk’s rekindled desire to buy Twitter Inc. for $44 billion. The debt commitment was provided when markets were on stronger footing, and the banks working on the deal now risk losing at least several hundred million dollars on the buyout package.
In another sore spot for Morgan Stanley, the bank in August placed one of its equity-syndicate bankers on leave as it deals with a US Justice Department probe into its block-trading business. The action against Charlie Leisure came nine months after his Morgan Stanley superior Pawan Passi was also put on leave. Passi was the head of the US equity-syndicate desk and led the bank’s communications with investors for equity transactions.
Wealth management, where Morgan Stanley has benefited from higher net interest income this year as the Fed boosts interest rates, reported revenue of $6.12 billion, up 3.1% from a year earlier. Net new asset flows dropped 52%. The bank’s investment-management arm posted $1.17 billion of revenue, down 20%.