Morgan Stanley delivered a major upside surprise in the third quarter, posting record revenue and the largest profit beat since 2019, fueled by a resurgence in dealmaking, robust equities trading, and expanding wealth management operations.
The Wall Street firm reported earnings of $2.80 per share, well above the $2.10 expected by analysts surveyed by LSEG, as profit jumped 45% year-over-year to $4.61 billion. Revenue climbed 18% to $18.22 billion, far exceeding forecasts of $16.7 billion. Shares rose 4.1% in premarket trading Wednesday and are now up more than 23% year-to-date.
Chief Financial Officer Sharon Yeshaya told Reuters the firm's investment banking pipeline is at "all-time highs," with activity "particularly strong" among financial sponsors. "It is certainly possible that next year we could break 2021 deal volume records," she said, pointing to an improving macroeconomic backdrop and stronger GDP outlook compared with earlier in the year.
The bank's investment banking revenue surged 44% to $2.11 billion from the same quarter a year earlier, driven by higher mergers and acquisitions and bond issuance. Morgan Stanley advised on major transactions, including Union Pacific's $85 billion acquisition of Norfolk Southern - the largest global deal announced this year. Equity underwriting revenue soared 80%, boosted by high-profile IPOs such as design software firm Figma and fintech Klarna.
Equities trading revenue also impressed, climbing 35% to $4.12 billion, or about $720 million above StreetAccount estimates, as record activity in prime brokerage offset slower fixed-income markets. Fixed income trading rose 8% to $2.17 billion, in line with expectations.
The bank's wealth management division - a pillar of its long-term growth strategy - reported a 13% revenue increase to $8.23 billion, surpassing forecasts by roughly $500 million. Rising asset values helped push total client assets to $8.9 trillion, moving closer to Morgan Stanley's goal of $10 trillion. The business generated a pre-tax margin of 30.3%, reflecting efficiency gains as market valuations strengthened.
Yeshaya credited the results to an improving economic environment, noting that lower borrowing costs and renewed optimism after the Federal Reserve resumed its rate-cutting cycle in September have boosted deal activity. "We had very strong results in the investment banking, and we're number one again in the equities business," she said.
Citigroup analyst Keith Horowitz called the quarter "a great one for MS with beats across the board," while Janney Montgomery Scott's Christopher Marinac said a "strong wealth management business can support ongoing activity in the investment banking channel."
