Morgan Stanley wealth arm rakes in record haul from IPOs

Morgan Stanley’s third-quarter profit climbed as the firm’s equity traders trounced analysts’ estimates and the wealth-management operation brought in a record amount of money.

The stock-trading business generated revenue of US$5.8 billion, compared with expectations for US$4.9 billion, while the closely watched wealth business soaked up a record US$232 billion in net new assets, according to a statement Wednesday.

Morgan Stanley said half of those new assets were tied to initial public offerings. The company’s IPO bankers have worked on some of the year’s biggest listings, including SpaceX (formally Space Exploration Technologies Corp.). Elon Musk’s aerospace company is a customer of Morgan Stanley’s workplace channel, which provides clients’ employees with benefits including equity compensation, retirement plans and other executive services.

“Should this IPO market continue over the next 12 months, we expect to continue to benefit from it,” chief financial officer Sharon Yeshaya said in an interview, adding that she doesn’t foresee a slowdown in new public listings.

Morgan Stanley and Bank of America Corp. wrapped up third-quarter earnings announcements for the biggest United States banks Wednesday in a quarter marking a stark divergence between the performance of equities and fixed-income trading desks. Bond traders are grappling with rising interest rates, which can crimp client activity, while stock traders have notched record after record this year on volatility fuelled demand.

In the years following the 2008 financial crisis, Morgan Stanley executives reshaped the firm to focus more on wealth management and less on trading and investment banking. It has swelled into a US$8.4 trillion juggernaut in the space, boosted by acquisitions along the way.

The surge in new wealth-management assets was more than double what analysts had expected. A rolling lockup expiry period from the big IPOs could signal benefits for Morgan Stanley that extend into quarters beyond when a major listing takes place.

That is especially notable as the market awaits two other IPOs from AI giants Anthropic PBC and OpenAI in coming months. Morgan Stanley will likely clinch a key role in both offerings.

Investors should still expect “ebbs and flows,” Yeshaya said, pointing to clients who may wish to convert their new stock into cash to spend.

Total revenue from the trading operation was US$7.81 billion, compared with expectations for US$7.31 billion. Wealth-management revenue jumped to US$9.1 billion from US$8.2 billion a year earlier. Net income was US$4.97 billion, up from US$4.66 billion.

Shares of Morgan Stanley, up 5.1 per cent through Tuesday, fell 2.2 per cent in early New York trading on Wednesday.

Unlike most of its peers, Morgan Stanley’s equities business has long been the larger of the two. It benefited from the boom in trading activity in Asia as well as a bigger focus in its derivatives business — two key pillars that have fuelled a surge in revenue from the unit for Wall Street’s biggest players.

Morgan Stanley used to be the biggest stock-trading shop on Wall Street, but Goldman Sachs Group Inc. has claimed that title in recent years.

Morgan Stanley’s investment bankers, meanwhile, posted US$2.16 billion in net revenue, compared with US$2.11 billion a year earlier. While there had been a slowdown in activity in September, conversations have picked up again, according to Yeshaya.

“There has been a real inflow of strategic deal activity and the pipeline there is building,” she said. “The corporates are there and they are interested.”

The company’s investment-management unit recorded a drop in revenue from the previous year. That was driven by a reversal in accrued carried interest tied to investments in an infrastructure fund.