Much of the talk yesterday on Wall Street centered around the good timing of David Solomon, who was named Goldman Sachs’ new chief executive on the same day the bank reported strong quarterly results. Ted Pick may have just one-upped him. Eyed as the potential successor to Morgan Stanley CEO James Gorman, Pick, who now oversees both the firm’s investment bank and securities business, just saw his new lieutenants book an historic second quarter. And Morgan Stanley paid them handsomely, suggesting the bank is much more than the wealth management haven Gorman often presents it as.
Morgan Stanley’s institutional securities business, made up mostly of its investment bank and trading businesses, delivered stronger revenue and profit than any of Morgan Stanley’s other divisions, including its hallmark wealth management division. Net revenues were up 20% year-on-year compared to just a 4% jump in wealth management.
The investment bank that Pick now oversees saw revenues increase a matching 20%, with Morgan Stanley’s M&A bankers doing much of the heavy lifting. Advisory revenues rose 23% year-on-year, making Morgan Stanley the top-ranked M&A shop on the street for the first half of the year. The bank’s IPO business did even better, with equity underwriting fees increasing 34%. Not a bad introduction to the business for Pick, Morgan Stanley’s longtime trading chief who was given responsibility over the investment bank just last week.
Meanwhile, Pick’s legacy business did more than fine on its own accord. Morgan Stanley was the only big U.S. bank to book double-digit rises in both equities and fixed income trading revenues during Q2, with 15% and 12% increases, respectively. Total sales and trading net revenues were up 15% for the quarter.
Investment bankers and traders are likely celebrating their new boss. Compensation and benefits costs within the institutional securities business reached nearly $2.2bn, up 20% compared to last year’s Q2. The bank is taking care of its new stars.
The earnings report begs the questions as to why, under Gorman, Morgan Stanley seems to go out of its way to appear as nothing more than wealth management titan. Morgan Stanley just had a very Goldman Sachs-like quarter. Meanwhile, Goldman appears to be incorporating Gorman’s strategy of embracing more sustainable revenue with its recent push into wealth management – Goldman is asking its dealmakers to make client introductions to drum up new business for its wealth managers – and its entrance into retail with its Marcus business. If Pick does eventually take over for Gorman, we could see Morgan Stanley in a new light.
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