Morgan Stanley dealmakers shine as fixed-income trading slips by 45%

Morgan Stanley’s dealmakers helped offset a decline in trading revenues as its fixed income unit slipped by 45% in the second quarter.

The bank followed Wall Street rivals with a sharp drop in trading revenues as the boom throughout the Covid-19 pandemic is fading. Fixed income revenues were down by 45% to $1.9bn during the quarter, while investment banking fees jumped by 16% to $2.4bn, largely as a result of M&A activity.

Overall, Morgan Stanley made net profits of $3.5bn, which was ahead of analyst expectations of $3bn for the three month period. Revenues of $14.8bn were up by 8% on the previous year.

“The firm delivered another very strong quarter, with contributions from all of our businesses,” Morgan Stanley’s chief executive James Gorman said in a statement.

READ JPMorgan’s investment bank slips by 19% as trading boom wanes

With the trading boom that has led to record revenues for banks last year is fading away, dealmakers have helped take up some of the slack. Goldman Sachs, JPMorgan and Bank of America all maintained record or near-record investment banking fees as M&A and equity capital markets have surged over the past six months.

Morgan Stanley’s M&A bankers brought in $664m during the second quarter, which was up by 44% on the same period last year. In the first six months of 2021, Morgan Stanley’s investment bank made $5.4bn, which is an increase of 58% on the previous year.

Morgan Stanley ranked third by investment banking fees in the first half of 2021, according to data provider Dealogic, up from fourth at the same period last year. Its equity capital markets revenues more than doubled compared to the same period in 2020, to $1.8bn.

READ Citigroup M&A fees surge as profit beats analyst targets

However, the fading fixed income trading boom meant that overall revenues within its markets division slipped by 23% to $4.7bn in the second quarter, as its larger equities unit was up by 8%. Morgan Stanley said the increase was particularly down to its prime broking unit.

This has been a particular focus of investors after large investment banks including Credit Suisse, Morgan Stanley, Nomura and UBS took big hits from the collapse of family office Archegos Capital, which made big bets in a select number of large technology firms. Morgan Stanley booked a $911m miss related to Archegos in the first quarter. Executives at Goldman Sachs and JPMorgan suggested they had gained market share in the units during second quarter earnings calls.

The bank cut compensation costs by 18% in the second quarter, which it said was reflective of lower revenues.

To contact the author of this story with feedback or news, email Paul Clarke

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