Modest dealmaking rise wasn’t enough to turn around Morgan Stanley’s profit slide

The news: Morgan Stanley posted another quarter of falling profits on Tuesday, with pre-tax income sliding 13% annually to a three-year low of $2.18 billion, per its earnings release.

• Revenues were up 2% year over year (YoY) to $13.46 billion.
• Credit loss provisions increased by $60 million.
• The bank’s wealth management side was rosier: revenues surged $934 million YoY to $6.66 billion, thanks in no small part to a more than 23% increase in net interest income.

Let’s make a deal: A dramatic contraction in mergers and acquisitions (M&A) has hammered banks over the last year—but things may be looking up.

• Global dealmaking activity plunged 40% YoY to $1.34 trillion, according to Dealogic.
• That led to a punishing 37% drop in investment banker revenues. Morgan Stanley’s Q2 advisory revenues fell roughly 24% YoY.
• But global M&A volume rose 23% from the first quarter to reach $739 billion in Q2. US volume also increased over the quarter, though it still languished nearly $100 billion short of volume from the same quarter a year ago.
• Banks are also reporting more dealmaking conversations and expect Q2’s increase to carry into the rest of the year, per The Information.

The big takeaway: While banks still have plenty to worry about, whispers of optimism are growing louder.

• Other banks have reported stronger consumer spending growth on the back of retreating inflation and a surge in positive consumer sentiment.
• Goldman Sachs dropped its forecast of a recession in the next year to 20%, and the dollar plunged—a positive sign for a host of international and domestic markets.

If these developments continue, it could be a welcome sign to banks to ease up on setting aside cash for loan losses and an opportunity to cinch more advisory fees from M&A activity. It could also encourage banks to unwind some of the credit tightening that seized lending volume after the banking fiasco earlier this year.

This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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