Morgan Stanley’s profits increased more than 40 per cent in the second quarter, but the bank reported a slowdown in growth in its cornerstone wealth management business.
Morgan Stanley reported quarterly net income of $3.1bn, up from $2.2bn a year earlier and ahead of analysts’ estimates.
That jump was aided by a rise of just over 50 per cent in investment banking fees from a year ago, to $1.6bn.
The return of investment banking business has been a theme of big bank results in the past two quarters.
After two years in which investors held off dealmaking and initial public offerings because of rising interest rates, investment banking revenues jumped in the quarter by 50 per cent at JPMorgan and 21 per cent at rival Goldman Sachs.
Morgan Stanley’s chief executive Ted Pick told analysts that barring a recession, “I think you will see over the next number of quarters, and really over the next number of years, a resumption of more normalised M&A activity”.
Morgan Stanley’s stock was up more than 2 per cent in morning trading on Tuesday in New York.
The company’s $5.7tn wealth management division fell short of growth estimates from analysts. The bank attracted net new assets of only $36.4bn, well below expectations for about $57.5bn and down from almost $90bn a year ago.
Net new assets in wealth management were the lowest since 2020 across the first six months of the year.
Morgan Stanley chief financial officer Sharon Yeshaya blamed the slowdown in part on higher tax payments, with the US deadline to file in April.
“We believe both tax-related outflows and increased spending, particularly among high net worth clients, impacted flows this quarter,” she told analysts.
Yeshaya said wealthy clients had been spending lavishly in the quarter, even as JPMorgan, Citigroup and Wells Fargo last week pointed to signs of financial stress among lower-income clients.
Wealth management has been a big driver of Morgan Stanley’s growth in recent years, boosted by its 2020 purchase of online trading platform ETrade. But its expansion has slowed more recently as client assets have become tougher to attract when interest rates are higher.
Profit margins in that business have also shrunk, as wealth clients have been able to leave money in cash and other more liquid products that offer a greater return in a higher interest rate environment but which are less lucrative for banks.
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