M&A and equity trading
Morgan Stanley (MS) took advantage of the advancing US economy by advising on a large number of M&A (mergers and acquisitions) transactions, and expanding its offerings in equity and debt products. The company’s total revenues from the institutional securities expanded to $5.5 billion as compared to $4.7 billion a year ago.
The company’s advisory revenues increased by 40% to $471 million as compared to the first quarter of the previous year. The higher client activity across the product categories and region helped push the equity sales and trading revenues by 35% to $2.3 billion. Revenues for fixed income and commodities trading also increased by 12% to $1.9 billion.
The fewer IPOs and lower loan volumes led to a decline in the equity and fixed income underwriting revenues by 2.5% and 18.5%, respectively. The increased business didn’t lead to higher exposure risk, as Morgan Stanley’s average trading value at risk (VaR) measured at the 95% confidence level was $47 million lower than the $50 million recorded a year ago.
Investment banking and corporate lending
Morgan Stanley advises corporates and governments on fund raising activities through equity and other related routes, and it manages and participates in public offerings and private placements of debt. The advisory is related to key strategic matters, restructuring, mergers and acquisitions, joint ventures, divestitures, leverage buyouts, spin-offs, and takeover defense. Plus, Morgan Stanley lends to companies, including bridge financing. It also acts as an agent, principal, and market maker in transactions related to cash equity and equity-related products, fixed income, and commodities.
Morgan Stanley competes with the securities, brokers, investment management, and investment bankers in this segment. Some of its peers include JPMorgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), Credit Suisse (CS), Evercore Partners (EVR), Deutsche Bank (DB), and Greenhill (GHL). Together, these companies form 17.06% of the Financial Select Sector SPDR (XLF).