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 The results underscored how businesses viewed as stodgy before the
financial crisis are becoming critical drivers of earnings for
investment banks now. Goldman's investment management, stock
underwriting and merger advisory businesses logged big gains. Morgan
Stanley did well in those areas, as well as in wealth management and
bond underwriting.
Across Wall Street, merger advisory fees grew 4.8 percent in the
first quarter over the same quarter last year, while stock
underwriting revenue surged 18.8 percent, Thomson Reuters Deals
Business Intelligence data show. Growth in initial public offerings,
where fees are often highest, was particularly robust.
Morgan Stanley was the biggest stock underwriter globally in the
first quarter, while Goldman earned the most fees from merger
advisory, Thomson Reuters data show.
Both banks benefited from these businesses, but Morgan Stanley got
far more of a boost than Goldman did. Morgan Stanley, which has made
a conscious effort to focus on slower-growing businesses like wealth
management after nearly failing during the financial crisis, posted
a 55 percent gain in shareholder earnings, and its shares rose 3.6
percent to $30.96.
Goldman Sachs posted its best investment banking revenues since 2007
and performed better than analysts had forecast. But the bank, which
has made fewer strategic changes than Morgan Stanley since the
crisis, posted an 8 percent decline in revenue and its profit for
shareholders fell 11 percent. It shares rose 0.4 percent $157.80 in
early afternoon trading.
"Morgan Stanley's management has made some excellent moves over the
last three or four years, and you're seeing the results now," said
Robert Lutts, chief investment officer at Cabot Money Management in
Salem, Massachusetts.
Devin Ryan, an analyst at JMP Securities, noted that with these
changes Morgan Stanley is positioned to perform well in the coming
years. He has an "outperform" rating on Morgan Stanley, and a
"market perform" rating on Goldman.
In 2009, John Mack, then chief executive of Morgan Stanley, agreed
to buy Citigroup's Smith Barney retail brokerage business over time,
a deal that closed in the middle of 2013. With that purchase, about
half of Morgan Stanley's annual revenue comes from wealth and
investment management, which tends to fluctuate less than trading
revenue.
Goldman Sachs, on the other hand, still relies heavily on trading — typically more than 60 percent of its revenue in a quarter comes
from stock and bond trading, both for itself and for customers.
Bond trading volume has dropped since the financial crisis, as
regulators have clamped down on banks making speculative bets in
markets.
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In response to a question from Reuters on a conference call, Goldman
Chief Financial Officer Harvey Schwartz acknowledged that the return
potential for Wall Street banks may never again reach pre-crisis
heights, due to higher capital requirements.
But he stopped short of saying that the bank should reshape itself
to reduce its reliance on trading stocks and bonds. "Our clients
wake up today and they focus on the same issues they always have,"
Schwartz said.
OUTLOOK CLOUDY
Indeed, the outlook for investment banking businesses is cloudy.
Goldman Sachs Group Inc said its backlog of investment banking
business, including underwriting and merger advisory, decreased.
But speaking on separate conference calls with analysts, executives
from both banks said the outlook for the merger advisory business
was good. Goldman's Schwartz also said that the bank's backlog of
business is stronger now than it was a year ago.
Morgan Stanley posted net income applicable to common shareholders
of $1.45 billion, or 74 cents a share, compared with $936 million,
or 48 cents a share, a year earlier.
Analysts, on average, expected the bank to earn 59 cents a share,
according to ThomsonReuters I/B/E/S. It was not immediately clear
how the estimates compare to the actual results, but several
analysts said the bank beat consensus.
Goldman Sachs, meanwhile, posted first-quarter earnings of $1.95
billion, or $4.02 a share, down from $2.19 billion, or $4.29 a
share, in the same quarter last year.
Analysts, on average, had expected earnings of $3.45 per share,
according to Thomson Reuters I/B/E/S.
That decline came largely from its revenue in institutional client
trading, which fell 13 percent to $4.45 billion, and investing and
lending for its own account, which fell 26 percent to $1.53 billion.
(Reporting by Lauren Tara LaCapra in New York;
additional reporting
by Peter Rudegeair; editing by Dan Wilchins and Bernadette Baum)
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