At Morgan Stanley, M&A eclipsing capital markets for first time

Morgan Stanley sign at night time

Morgan Stanley’s M&A bankers are putting their capital markets colleagues in the shade for the first time in 2016

Advisory revenues in the six months to June 30 rose 22% from a year ago to $ 1.09 billion, while revenues from debt and equity underwriting totalled $ 1.01 billion, down from $ 1.7 billion, according to Morgan Stanley‘s latest quarterly results published on July 20.

A spokesman for the bank confirmed 2016 marks the first time that advisory revenues have exceeded underwriting revenues over the first six months of a year.

FN analysis of the bank’s previous results statements on its website dating back to 2000 shows that advisory work has never outstripped underwriting work in terms of revenue generation over a financial year.

The first-half performance was achieved partly thanks to a 17% rise in second-quarter advisory revenues from a year earlier to $ 497 million, the second-highest percentage increase for advisory revenues on Wall Street behind Bank of America Merrill Lynch. Morgan Stanley said the rise was due to “higher levels of completed M&A”.

Underwriting revenues, however, dropped 40% in the second quarter to $ 611 million from $ 1 billion a year earlier. “Significantly lower market volumes” drove a 46% fall in equity underwriting revenues to $ 266 million, while fixed income underwriting turned in a 35% drop – the sharpest fall in that business line on the Street for the quarter – to $ 345 million due to “lower bond and loan fees”.

Morgan Stanley ranked fourth for completed M&A deals in the second quarter and third in terms of the value of those deals, according to data firm Dealogic. Its largest deal was Charter Communications’ purchase of Time Warner Cable, valued by Dealogic at $ 79 billion. The data firm said Morgan Stanley would have received $ 40 million across success and opinion fees for its work advising the target.

Elsewhere in the bank’s institutional securities business, which houses investment banking as well as sales and trading and other investments, second-quarter equity sales and trading revenues were down almost 6% excluding valuation adjustments to $ 2.1 billion, with the bank citing “reduced volumes and levels of activity in Asia, partially offset by better performance in Europe and the US”.

Revenues from fixed-income and commodities sales and trading, excluding adjustments, nudged up by 2.4% to $ 1.3 billion.

Morgan Stanley chairman and chief executive James Gorman said on the earnings call on July 20: “Britain’s decision to leave the European Union created uncertainty that is likely to persist for some time as the market grapples with the political and economic paths forward. As we’ve said publicly, we considered this outcome sub-optimal, but it did indeed provide us with a live stress scenario as we endured record high volumes and spikes of volatility.”

The institutional securities unit posted an 8% fall in second-quarter revenues at $ 4.6 billion, but a 5% rise in pre-tax profits, at $ 1.5 billion. Compensation expenses for the quarter were down year-on-year at $ 1.6 billion, while non-compensation expenses also fell, to $ 1.4 billion.

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