Investment banking surge at Morgan Stanley solidifies Wall Street revival

An investment banking surge at Morgan Stanley (MS) solidified a dealmaking revival across Wall Street, as the firm's profits in the third quarter exceeded analyst expectations.

Fees from investment banking jumped 56% from a year ago, the largest leap among big banks, to nearly $1.4 billion.

The pick-up in investment banking and an increase in trading helped Morgan Stanley push its net profit up by 32% from a year earlier, to $3.2 billion.

The results cement a broad rebound across the Wall Street operations of the country's biggest banks. Investment banking fees and equity trading revenue also jumped at JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS), Bank of America (BAC) and Citigroup (C).

Executives at these banks have been optimistic that the start of an interest rate-cutting cycle at the Federal Reserve — which last month reduced its benchmark rate by 50 basis points — will mean more deals in the near future.

“The Firm reported a strong third quarter in a constructive environment across our global footprint," Morgan Stanley CEO Ted Pick said in statement, citing "momentum in the markets and underwriting businesses on solid client engagement.”

Morgan Stanley beat analyst expectations in dealmaking fees from its bond underwriting and M&A advisory unit as well as revenues for its trading and wealth management divisions.

Its total net revenue of $15.4 billion rose 16%. Fixed income and equities trading revenue surged 13% to $5 billion, driven largely by equities.

The stock was up by more than 3% in early morning trading. As early Wednesday, it was up over 20% since the beginning of January, trailing rises for some of its other big-bank rivals.

One area of the company's investment banking franchise that proved softer than analysts were hoping was its equity capital markets desk, which posted revenue of $362 million. Analysts were hoping for $12 million more.

Another bright spot that emerged Tuesday was Morgan Stanley’s recent performance in wealth management, which provides financial advice to higher-net-worth individuals.

Net new assets in that division rose 79% from a year ago and 76% from the last quarter, to $64 billion. Revenues were $7.3 billion, a 13.5% increase from a year ago and a 7% rise from the last quarter.

The third quarter performance bodes well for Pick, who is still in his first year as top boss.

Since the announcement that Pick would take over for longtime CEO James Gorman, the firm's stock has outperformed major stock indexes. Its up 57% for that period. Gorman plans to step down from the executive chairman role at the end of this year.