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Morgan Stanley, Goldman soar past rivals with dealmaking rally

Their investment-banking businesses surge in Q3, helped by IPO boom; debt-underwriting units weather slowdown

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Goldman CFO Marty Chavez says the firm is making steady progress in its goal to cover 1,000 new corporate clients.

New York

DEALMAKING'S not quite dead yet on Wall Street.

Morgan Stanley and Goldman Sachs Group Inc both said on Tuesday that their investment-banking businesses surged in the third quarter, a sharp contrast to the slumps seen at all their major rivals.

Both banks were helped by a boom in initial public offerings, and their debt-underwriting units weathered a slowdown better than the larger peers.

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The two firms may look more and more like traditional lenders nowadays - offering up basic products like personal loans and mortgages - but fees from advising on mergers and underwriting securities still make up an outsize portion of their revenue. The investment-banking results powered better-than-expected quarterly profits for both Goldman and Morgan Stanley and sparked rallies in their stocks.

"Banking results are extremely strong, this is our best third quarter," Morgan Stanley chief financial officer Jonathan Pruzan said. He said the gains came from "strengthening relationships, gaining share and the global footprint working."

Morgan Stanley's investment-banking revenue surged 15 per cent, and the business was up 10 per cent at Goldman. JPMorgan Chase & Co, Citigroup Inc and Bank of America Corp posted declines.

At Goldman Sachs, the results were a boon to new chief executive officer David Solomon, who ran the investment-banking unit for a decade before rising to the top job.

Morgan Stanley benefited from a surprise jump in debt underwriting - the only rise on Wall Street - and said the bank's pipeline for mergers and acquisitions (M&A) is strong for the rest of the year.

Morgan Stanley shares climbed 5.4 per cent at 1:54pm in New York, the most since February 2017. Goldman Sachs's stock rose 2.4 per cent.

M&A advice wasn't the bright spot. Fees were roughly unchanged at Goldman, and they slipped at Morgan Stanley. There are concerns among investors that dealmaking could be damped as trade tensions and market volatility weigh on large-scale transactions. Announced M&A volumes of more than US$3 trillion globally through the end of Q3 had given 2018 a chance to set a record for deals.

The outlook for dealmaking is unclear. Trade tensions between the US and China may challenge some key areas of growth. Asia's equity exchanges are "down pretty dramatically", Mr Pruzan said, after strong equity underwriting in the region earlier in the year. Cross-border dealmaking may also be affected. Goldman Sachs said its backlog was lower compared with the end of the second quarter.

But the two firms showed they could post gains even in a down overall market for fees, which could help them narrow this year's stock declines, the worst among major banks.

Goldman CFO Marty Chavez said the firm is making steady progress in its goal to cover 1,000 new corporate clients.

"There's a disconnect between perception of the cycle coming to an end and these companies telling us that things feel constructive," said Devin Ryan, a bank analyst at JMP Securities LLC. BLOOMBERG