Morgan Stanley Q3 Earnings Beat Est, Shares Up 7.5%, Signal Tailwind For Investment Banks

Morgan Stanley reported third-quarter profits of $3.2 billion before the market opened, a 32% year-over-year increase that exceeded Wall Street expectations. Shares climbed 7.5% in early trading.

The bank's results cap a strong earnings season for major U.S. banks, signaling that investment banking is rebounding after a two-year slump caused by rising interest rates. Following gains posted by its biggest rivals, Morgan Stanley benefited from a lift in its markets business and a steady recovery in investment banking fees, fueling more dealmaking.

CEO James Gorman highlighted that buoyant stock markets and strong net inflows supported growth in the wealth management and investment management divisions. The bank has been reassuring investors that margins in its massive wealth management arm are set to improve as it aims for a $10 trillion asset management target.

"We’re seeing increased activity in equity capital markets, particularly from financial sponsors, not just in U.S. IPOs but also in Europe," said CFO Sharon Yeshaya. She noted that investment banking is still in the early stages of recovery after two quiet years.