Traders Rescue Goldman, Morgan As IB Suffers Equity ‘Standstill’

Morgan Stanley fell short in investment banking during the first three months of the new year. Or at least versus consensus estimates.

Consistent with underwhelming IB results from JPMorgan, equity and fixed income underwriting were both short of Street expectations.

Equity underwriting revenue was just $258 million, almost $200 million short of the $452 million analysts expected and down 83% from the same period a year ago. Fixed income underwriting revenue of $432 million was also a miss. Analysts wanted more than $480 million.

All told, IB revenue of $1.63 billion missed estimates ($1.8 billion) and dropped 37% YoY. It was just two quarters ago when the bank’s investment bankers notched a record $2.85 billion in revenue (figure below).

Morgan cited lower issuance “in an uncertain market environment” for lackluster equity underwriting and “macroeconomic conditions” for the shortfall in fixed income. Advisory revenues nearly doubled from Q1 2021.

Goldman also saw a steep drop in IB revenue over the period. $2.41 billion represented a 36% decline on both a 12-month and QoQ basis. Equity underwriting plummeted 83% and debt underwriting dropped 16%.

The bank cited “a significant decline in industry-wide activity” and lower net revenues from leveraged finance and asset-backed activity in fixed income.

Advisory revenues fell 30% QoQ, but recall that both Q4 and Q3 were record quarters (figure above). YoY, advisory revenue rose slightly. Backlogs are still elevated, albeit lower sequentially.

Goldman blew the doors off in trading, though. FICC sales and trading revenue of $4.72 billion exceeded the $3.12 billion consensus by a country mile, while equities revenue of $3.15 billion was also comfortably ahead of the Street.

The FICC figures represented a 21% YoY increase. Notably, Goldman flagged record FICC financing revenues on “significantly higher” mortgage lending against “significantly lower” net revenues in mortgage products. All told, markets revenue of $7.87 billion was a dramatic beat (black line versus the red dot in the figure, above).

Morgan’s traders likewise delivered. FICC and equities revenues of $2.92 billion and $3.17 billion, respectively, were comfortable beats.

On the topline, both Morgan and Goldman topped estimates. Morgan’s net revenue was $14.80 billion. Consensus wanted $14.19 billion. Goldman raked in $12.93 billion, more than a billion ahead of estimates.

Morgan’s press release was characteristically spartan, and Gorman was terse, as usual. Morgan has a “sustainable business model” and is “well positioned to drive growth over the long-term,” he said. That could’ve easily walked out of any other press release from the bank during any other quarter. Gorman nodded to “market volatility and economic uncertainty.”

For his part, Solomon cited “turbulent” times and called Russia’s invasion of Ukraine “devastating.” “The rapidly evolving market environment had a significant effect on client activity as risk intermediation came to the fore and equity issuance came to a near standstill,” he went on to say.

Fortunately, Goldman wasn’t deterred. “Despite the environment, our results in the quarter show we continued to effectively support our clients,” Solomon went on to remark.

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