2024-07-18 09:00:00 ET
Summary
- Morgan Stanley is benefiting from a revival in ECM and DCM, and now its advisory businesses are also benefiting from more high ticket M&A where the mid-market has been better.
- In particular, DCM is looking strong as Morgan Stanley is cashing in on ample demand for corporate credit at higher yields, even though credit spreads remain historically low.
- YoY ECM is also up, although the sequential declines despite a strong market show that the business is naturally more fickle and lower visibility.
- Wealth management and asset management are solid, in line with peers, as well as the institutional brokerage business.
- The valuation is probably fair if you impute valuations from some comps, but we prefer more exposure to the eventual return to form of PE and better baseline mid-market growth.
Morgan Stanley ( MS ) delivered a decent quarter last time, but highlighted the disadvantage of being in the large-ticket markets as opposed to an advisory in the mid-market, which has consistently outperformed. The wealth management business was growing, and the company is claiming that growth in client assets in the broader business will start shifting into advice-based accounts that generate more revenue per dollar of client capital. The shrinking NII as less balances were sitting out doing nothing in this trading cycle means less NII, but the higher rate situation means these figures should have represented a bottom, and are consistent in dynamics with peers - not a negative outlier. The big driver of growth though is the ECM and DCM businesses, which have pretty low visibility, and might be subject to pull forward. However, these concerns don't matter if the economy continues to perform well, and public equity markets in particular continue to be inviting. PE markets were still entirely frozen, and will be a major boon when it finally thaws, but the thinking was that could still be in several quarters' time....
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Morgan Stanley: Technically Fair, But Mid-Market Still Better