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Morgan Stanley’s profits rose more than 40 percent in the second quarter, but the bank reported slower growth in its core wealth management business.
Morgan Stanley reported quarterly net income of $3.1 billion, up from $2.2 billion a year earlier and beating analysts’ estimates.
The jump was supported by investment banking fees, which rose just over 50 percent from a year ago, to $1.6 billion.
The return of investment banking has been a theme in major banks’ results over the past two quarters.
After two years of investors shying away from deals and initial public offerings due to rising interest rates, investment banking revenue in the quarter jumped 50% at JPMorgan and 21% at rival Goldman Sachs.
Morgan Stanley CEO Ted Beck told analysts that absent a recession, “I think you will see over the coming quarters, and even over the coming years, a resumption of more normal M&A activity.”
Morgan Stanley shares rose more than 2 percent in morning trading Tuesday in New York.
The company’s $5.7 trillion wealth management unit fell short of analysts’ expectations. The bank attracted just $36.4 billion in new net assets, well below expectations of about $57.5 billion and down from about $90 billion a year ago.
Net new assets in wealth management hit their lowest level since 2020 during the first six months of the year.
Morgan Stanley CFO Sharon Yeshaya blamed the slowdown in part on higher tax payments, with the U.S. tax filing deadline set for April.
“We believe that tax-related outflows and increased spending, particularly among high-net-worth clients, impacted flows this quarter,” she told analysts.
Wealthy clients spent heavily during the quarter, Yeshaya said, even as JPMorgan, Citigroup and Wells Fargo last week flagged signs of financial distress among lower-income clients.
Wealth management has been a big driver of Morgan Stanley’s growth in recent years, boosted by its purchase of online trading platform ETrade in 2020. But its expansion has slowed recently as client assets have become harder to attract when interest rates are higher.
Profit margins in this business have also been squeezed, as wealthy customers have been able to leave their money in cash and other more liquid products that offer a higher return in a higher interest rate environment but are less profitable for banks.
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