Morgan Stanley Joins Wall Street Rivals’ Stock-Trading Boon

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1:38Scarlet Fu:It is all about the big bank earnings. Yesterday, we got a bonanza, five of them. Today, we get the last of the big six banks, and that is Morgan Stanley. BlackRock also reported as well. So let's bring in Neil Seipz. He is Bloomberg Intelligence, U.S. financials analyst. And Neil, the takeaway from the big banks results yesterday was that trading revenue has gone gangbusters. And I think we got more proof of that today from Morgan Stanley. Yeah, we sure did. And I think you've seen it across all the names that I've reported so far. Pretty, I think a lot of people have been using eye-popping numbers, right?

2:12I mean, beats that are in the billions of dollars in beats, not numbers we're used to seeing. We'll put it that way. And I think, you know, again, the trading business, I think where we stand today, we've seen really strong equity markets, particularly in the second quarter, where you had sort of a V-shaped recovery really at the beginning around the Middle East tension, sort of easing off of a cliff. And then you had, of course, SpaceX IPO. There's rumors of more coming either in the second half. Maybe they get pushed into 2027. So there's tailwinds there that have been driving this activity.

2:44There's themes like Asia. There's themes like AI. All of this is sort of fueling particularly equities trading. Again, when you think about the trading business, it's kind of fickle, right? So the repetitiveness of something like the second quarter that we saw, I think that's what people are asking is, you know, is there more to come on the investment banking side? I think the answer is yes there, right? because we see really strong pipelines. We see Goldman posting the best fees since 2021 and saying the pipeline's actually higher than it has been in the past five years, which by the way, it was 2021.

3:19So it feels like second half even better in that business.

3:22Scarlet Fu:How much can you count on the pipelines to deliver? I mean, it's stuff that's in progress, but has not been finalized or completed. So is that basically as good as it gets? Yeah, and to be fair, the pipelines are, there's always optimism in the pipelines, even when things are not that great. So I think that's where we stand is you have to have the inputs to execute on that pipeline. And the biggest inputs are really the markets, broader sentiment, macro conditions. All of that sort of feeds into, OK, are these deals actually going to come to market? Are capital issuers and capital providers all willing to meet at the same time?

4:01And, you know, the conditions have generally been there, you know, aside from a couple brief moments in the past couple of years. And the expectation is for more of that to come. But, you know, you snap your fingers and markets go against you. All of that can sort of ice over for at least a couple of weeks, if not longer. What's when I think of Morgan Stanley and I think a lot of investors, they want to get a sense of the private wealth business. And because they are such such a big part of their business and they're so good at it. What are they saying about that business? Yeah, so it's over half of earnings now for Morgan Stanley.

4:31So it is really the driver of the franchise. Again, the headlines are generated by capital markets because it can swing so much. The through the cycle ballast is wealth management. And I think that business, again, market dependent, it's firing, right? We got margins at 30%, which is the target. Organic growth at 8%. I think an interesting component here in the second quarter was the sort of windfall of flows coming from the IPOs that we saw in the second quarter. So you think about all the wealth that's tied up within employees and early investors in something like SpaceX, almost half of the$150 billion of flows was derived from IPOs in the quarter that Morgan Stanley was involved in.

5:15So you think about that flywheel. I mean, that's Morgan Stanley in a nutshell.

5:19Scarlet Fu:That number is so big. It's kind of hard to believe. Yeah, I've never heard something like that. $150 billion in net new assets in its wealth management business in a three-month period. That's kind of nuts. Yeah, I think the only one that comes to mind right off the hop is something like a BlackRock, who's producing numbers like that, who also reported this morning with also stellar results. Now, these are the dumb numbers. The BlackRock numbers are just dumb. The assets under management are what now? $15 trillion. $15 trillion. $15.3. Is that incredible? But so much of it is in passive investments, right?

5:51Scarlet Fu:I mean, it's, you know, put it there and forget about it. It is, but I think the story with BlackRock now is a little bit of a shift underneath the surface. So yeah, we initially think of iShares and that's been the powerhouse for BlackRock, but increasingly the growth is coming from the higher fee buckets. Now we have active ETFs that are really taking off. You have things like private markets. So impressively, the growth at BlackRock has started to shift a little bit more and be more consistent in those non ultra low beta type funds and into things that are more lucrative, which is obviously positive to the business.

6:26So, you know, they did a handful of alternatives transactions in the past couple of years. Those look like they're bearing fruit. And yeah, I mean, the growth remains pretty stellar, which, by the way, the growth is tends to be harder to come by once you reach 15 trillion, but they keep putting up the numbers. And I think it's getting rewarded for that. This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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