Morgan Stanley on Friday appeared to report a $911 million loss tied to the Archegos blowup.
That means that outside of Nomura and Credit Suisse, Morgan likely suffered the most from Bill Hwang’s epic flameout, by some accounts the largest margin call in history. Well, other than Bill. Technically speaking, he suffered the most.
“The current quarter includes a loss of $644 million related to a credit event for a single prime brokerage client, and $267 million of subsequent trading losses through the end of the quarter related to the same event,” Morgan said, in its characteristically spartan earnings release.
Other than that (i.e., if you ignore the dead whale in the room), the bank’s Q1 results looked solid. Adjusted EPS of $2.22 was easily ahead of the $1.68 the market wanted, and revenue of $15.7 billion breezed past consensus, which was looking for just under $14 billion. Gorman was even more blunt than usual. “The Firm delivered record results,” he said, flatly. Morgan “is very well positioned for growth in the years ahead.”
IB revenues of $2.61 billion were up 128% YoY. Equity underwriting almost quintupled from the same period a year ago thanks to higher IPO volumes, blocks and follow-on offerings “as issuers and sellers took advantage of the strong market conditions.” “A favorable market environment” for issuers helped fixed income underwriting jump 41%.
In wealth management, revenue of $5.96 billion represented a 48% gain, and beat estimates. Morgan cited “higher asset levels and record fee-based flows” in asset management. The bank noted that it resumed its buyback program in Q1, subject to Fed limitations.
In equities (where the Archegos losses were), revenues rose 17% YoY to $2.9 billion. FICC was strong. Revenue of $2.97 billion beat estimates and was up 44% YoY.
I doubt there’s much utility in parsing Morgan’s results any further. At this point, it’s more useful to just step back and assess the situation from a 30,000-foot view. The figure (below) sums up the quarter for Wall Street’s investment bankers and traders.
Long story short, they made a lot of money. Large numbers. “Tremendous” amounts, as one former president would put it. “Many, many billions.”
One last figure (below) gives you some context for who managed to post the largest trading gains.
At the end of the day, Q1 was a banner quarter for Wall Street. The show must go on, after all. Pandemic or no pandemic. Insurrection or no insurrection. Archegos or no Archegos.
And so, records were set. Some fared better than others, but ultimately, the house always seems to win. Assuming you have a house. If only we can figure out how to securitize those “tent cities,” we’d have another revenue stream. Can I interest you in the subordinate tranches of my new tent-backed deal? It’s “pretty substantial.”