Morgan Stanley profit blows past estimates, flags credit event loss

Despite that setback from the one-time loss, overall results comfortably beat expectations, wrapping up a robust quarter for Wall Street's biggest banks that benefited largely from reserve releases, record capital markets activity and a surge in trading. The spike in trading volumes during the first quarter of 2021, driven by a Reddit-fueled trading frenzy in "meme" stocks like GameStop Corp, drove a 66% jump in revenue at Morgan Stanley's institutional securities business.

Morgan Stanley reported a 150% jump in first-quarter profit on Friday that sailed past expectations, as a global dealmaking boom boosted investment banking and heightened trading activity lifted its institutional securities division. The Wall Street powerhouse, however, recorded a total one-off loss of over $900 million that it said was related to a credit event and subsequent losses from "a single prime brokerage client."

Morgan Stanley was one of six banks who had exposure to Archegos Capital Management, a family office fund that defaulted on margin calls late last month and triggered a firesale of stocks across Wall Street. Despite that setback from the one-time loss, overall results comfortably beat expectations, wrapping up a robust quarter for Wall Street's biggest banks that benefited largely from reserve releases, record capital markets activity and a surge in trading.

The spike in trading volumes during the first quarter of 2021, driven by a Reddit-fueled trading frenzy in "meme" stocks like GameStop Corp, drove a 66% jump in revenue at Morgan Stanley's institutional securities business. Morgan Stanley said net income applicable to shareholders rose to $3.98 billion, or $2.19 per share, in the quarter ended March 31, from $1.59 billion, or $1.01 per share, a year ago.

Analysts were looking for a profit of $1.70 per share, according to IBES data from Refinitiv. Net revenue jumped 61% to $15.72 billion.

Like bigger rival Goldman Sachs Group Inc, Morgan Stanley benefited from an unprecedented boom in dealmaking through special purpose acquisition companies (SPACs). Global investment banking fees hit an all-time record of $39.4 billion during the March quarter, according to data from Refinitiv.

Morgan Stanley conceded the second position in the league tables to JPMorgan Chase & Co during the quarter, according to Refinitiv, but still raked in robust investment banking fees -- the league tables rank financial services firms on the amount of M&A fees they generate. Investment banking revenue more than doubled to $2.6 billion, driven largely by the volume of such deals.

Morgan Stanley also generated handsome underwriting fees from numerous high-profile IPOs of companies such as Affirm Holdings and AppLovin Corp.

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