Morgan Stanley shares fall despite earnings beat, as investment banking revenue shrinks

By Tatiana Bautzer and Manya Saini

(Reuters) -Morgan Stanley’s profit beat Wall Street estimates in the second quarter as its traders cashed in on volatile markets, but shares fell since the market opening as its investment banking revenue shrank.

Stock markets swung sharply during the quarter after U.S. President Donald Trump announced sweeping tariffs against major economies. This spurred volatility and trading volume, as investors repositioned their portfolios and hedged risks. But markets recovered late in the quarter and improved the outlook for business.

Morgan Stanley shares opened down 3%, but accelerated the decline to almost 4% after a report about Trump potentially taking action to fire Fed chairman Jerome Powell.

“The second quarter unfolded with two distinct halves. The first half began with uncertainty and market volatility associated with the U.S. trade policy, and the second half ended with increasing engagement and a steady rebound in capital markets,” CEO Ted Pick told analysts on a conference call.

Traders brought in a big windfall and institutional securities, which houses Morgan Stanley’s Wall Street operations, posted revenue of $7.6 billion, compared with $7 billion a year ago.

Investment banking at Morgan Stanley did not recover as quickly as it did for rivals such as Goldman Sachs, Citigroup and JPMorgan Chase. The other lenders also reported trading windfalls in the second quarter.

Morgan Stanley’s revenue fell 5%, and fewer completed M&A transactions weighed on its advisory revenue. But executives were more optimistic about the outlook for M&A and IPOs.

“We are optimistic about the capital markets rebound,” Chief Financial Officer Sharon Yeshaya told Reuters in an interview. “Companies are looking past tariffs for strategic movements and growth,” she said, adding that discussions about mergers and divestitures are active again.

Morgan Stanley’s equity underwriting surged 42% to $500 million, driven by higher follow-on and convertible deals as well as IPOs. It was the lead underwriter of fintech giant Chime’s June IPO and also led IPOs for Hinge Health, and marketing tech firm MNTN in May. Other prominent deals in the quarter were financing for Elon Musk’s xAI and advisory on the sale of Silvus Technologies to Motorola.

Overall, the bank beat forecasts with a net income of $3.5 billion, or $2.13 per share in the quarter, above the estimates compiled by LSEG of an average $1.96 per share.

After reducing headcount by 2,000 employees in the first quarter, Morgan Stanley is not discussing more job cuts.