Morgan Stanley overtakes arch-rival Goldman Sachs in equities trading

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Morgan Stanley overtook arch-rival Goldman Sachs in equities trading in the third quarter for the first time since 2022, helping the investment bank’s profits jump by almost half.

Morgan Stanley said on Wednesday that net income for the three months to the end of September was $4.6bn, more than $1bn better than analysts had expected.

The core Wall Street businesses of investment banking and trading have powered forecast-beating results across America’s biggest banks.

Goldman, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have all surpassed expectations in the past two days on the strength of their investment banks.

In equities trading, Morgan Stanley generated revenues of $4.1bn, up 35 per cent from a year ago and ahead of the $3.7bn reported by Goldman on Tuesday.

Equities trading has been a key point of rivalry between the two investment banks, and this quarter marked the first time that Morgan Stanley had out-earned Goldman in the business since the final quarter of 2022. 

Morgan Stanley was traditionally the dominant force on Wall Street in stock trading.

But it ceded that position to Goldman after it sustained heavy losses tied to investment firm Archegos Capital Management, and it has made a concerted effort to regain its top position under chief executive Ted Pick, who took over from James Gorman at the start of 2024. 

“We’re trying to create a more durable business,” Morgan Stanley chief financial officer Sharon Yeshaya told the Financial Times.

“Part of that comes from the lending and the prime brokerage business associated with equities. And some of it comes from the relationships that we continue to build on the corporate side.”

Investment banking generated $2.1bn in revenues, a 44 per cent improvement on the same quarter last year, which was in line with Goldman.

Goldman reported a 43 per cent increase in investment banking revenues to $2.7bn on Tuesday, while JPMorgan could only manage more modest gains of 16 per cent to $2.6bn and Citigroup reported a 17 per cent rise to $1.2bn.

Yeshaya said the bank was at “record levels when you look at the pipeline and the backlog” of potential deals.

Morgan Stanley’s wealth management business also performed far better than expected, drawing in net new assets of $81bn in the quarter compared with the $67bn investors were looking for.

The figure is followed closely by investors as a gauge of the business’s growth trajectory, with Morgan Stanley’s revenues split relatively evenly between its investment bank and wealth management divisions.

Morgan Stanley’s earnings came on the same day as Bank of America, which also trounced expectations for its investment bank. BofA reported a 43 per cent rise in investment banking fees to just over $2bn. Analysts had only expected the business to bring in $1.6bn.

BofA also reported an 11 per cent rise in revenues in its markets division to $6.5bn, helping lift the bank’s profits by almost a quarter from a year ago to $8.5bn.

Morgan Stanley and BofA shares were both up more than 4 per cent in pre-market trading.