Morgan Stanley (NYSE:MS) reported better-than-anticipated first-quarter results, even as its investment banking business continued to be weak. The bank’s first-quarter revenue declined 2% year-over-year to $14.5 billion, as higher wealth management revenue was more than offset by a 24% drop in investment banking revenue to $1.2 billion. During the Q1 earnings call, Morgan Stanley’s Chairman and CEO James Gorman stated that underwriting and mergers and acquisition (M&As) “remain very subdued.”
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Continued Weakness in Investment Banking
Within investment banking, revenues declined across advisory, equity underwriting, and fixed income underwriting businesses in the first quarter. Advisory revenues were impacted by fewer completed M&As, while equity underwriting revenues fell due to lower initial public offering (IPO) volumes. Further, fixed income underwriting revenues declined due to lower non-investment grade loan issuances.
After the deals spree in 2021, the IPO and special purpose acquisition companies (SPAC) market witnessed a major dip as investors avoided high-flying growth investments for safer bets. Persistent macro uncertainty and the recent banking crisis also impacted the deal market. As per Dealogic, M&A volumes plunged 48% year-over-year to $575.1 billion in Q1 2023 (as of March 30).
Aside from Morgan Stanley, Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) also reported lower investment banking revenues. Nonetheless, banks expect deal activity to pick up in the times ahead. Gorman stated that the underwriting and M&A revenues of Morgan Stanley are “delayed, not dead.”
“Already, we are seeing a growing M&A pipeline and some spring-like signs of new issuance emerging. That said, it largely remains a back half 2023 and full year 2024 story,” said Gorman.
Is Morgan Stanley Stock a Buy?
Wall Street’s Moderate Buy consensus rating for Morgan Stanley is based on seven Buys, four Holds, and two Sells. The average price target of $96.58 suggests over 6% upside. MS stock has risen 7% so far this year.
