Wall Street nemeses revitalize clash of titans
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, Oct 16 (Reuters Breakingviews) -Wall Street’s favorite arch-rivalry is again the main event. Morgan Stanley MS.N boss Ted Pick unveiled a 56% jump in deal-related revenue, propelling the mega-bank’s shares to a record high on Wednesday. It also narrows a gap with nemesis Goldman Sachs GS.N, which in turn is redoubling efforts in wealth management. As their strategies increasingly collide, the storied battle will intensify.
Morgan Stanley generated more than $15 billion in revenue for the three months ending in September, a 16% increase from the same period a year earlier and more than analysts had been expecting, according to Visible Alpha. Its advisers also outpaced the 20% uptick by their crosstown counterparts. With the latest figures in, Morgan Stanley’s stock has now outperformed Goldman’s stretching back to when David Solomon took the top job in 2018.
A lot of this is just catching up. Goldman leads the industry in dispensing M&A counsel. And although its advisory and underwriting business also is expected to deliver 30% more revenue than Morgan Stanley in 2024, it would be the narrowest gap between the two in six years.
The battle royale is being revitalized by Goldman’s retreat from attempting to break into Main Street. Instead, Solomon touts the “one Goldman” strategy of bankers working closely to generate extra revenue; Morgan Stanley similarly emphasizes the “integrated firm.” Both are seeking more steady income to smooth out market gyrations, much of it in wealth and asset management.
It’s easy to see why Goldman has changed tack. Under Pick’s predecessor, Morgan Stanley bought online brokerage E*Trade and investment shop Eaton Vance, solidifying its appeal to the so-called mass affluent, with some $6 trillion in customer assets. The division’s return on equity, adjusting for intangibles such as goodwill from acquisitions, is an eye-popping 37% this year. Goldman is targeting richer clients with an average account of about $70 million.
The broad idea is to persuade investors to rethink the way they value banks, much the same way they have investment giants like Blackstone BX.N. The buyout firm now commands a multiple of nearly 28 times forecast earnings for the next 12 months. Morgan Stanley trades at 14 times; Goldman at 12 times.
Although Goldman has hit its 24% pre-tax profitability target in wealth and asset management, there’s more work ahead to regain trust from investors scarred by the consumer banking mess. Morgan Stanley also fetches a healthy premium measured by its stock price relative to book value. As the two competitors increasingly match up in roughly the same rings, their heavyweight fight will be a hot ticket.
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CONTEXT NEWS
Morgan Stanley shares jumped 8% on Oct. 16 after it reported $15.4 billion of third-quarter revenue, net of interest expenses, a 16% rise from a year earlier and about 7% higher than what analysts had forecast, according to Visible Alpha data.
The mega-bank led by Ted Pick generated a 56% year-over-year rise in investment banking revenue, to roughly $1.5 billion, boosted by underwriting fees from debt issuance. Its wealth management division grew the top line by 13.5%, to $7.3 billion.
Under CEO Solomon, Goldman shares lags its rival's https://reut.rs/3YciWi6
Morgan Stanley's investment banking growth surges https://reut.rs/4eNPZAc
Editing by Jeffrey Goldfarb and Pranav Kiran
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