The third quarter had been good to Wall Road’s two greatest standalone funding banks.
Surging buying and selling income helped Morgan Stanley ship its second-highest quarterly revenue ever on Thursday. That comes a day after rival Goldman Sachs reported its personal blowout outcomes.
But for all their similarities, Morgan Stanley and Goldman provide very totally different funding propositions. Goldman stays extra geared in the direction of cyclical market exercise. Buying and selling and funding banking made up 60 per cent of its income through the third quarter, in comparison with 50 per cent at Morgan Stanley.
Regardless of Goldman’s latest efforts to diversify away from its Wall Road roots — specifically with its push into client banking and wealth administration — Morgan Stanley is far additional alongside in its transformation.
The group’s wealth administration and funding administration companies continued to be regular earners through the pandemic. Each divisions are set to play a fair larger position following the acquisitions of ETrade and fund supervisor Eaton Vance this 12 months.
This “three-legged stool” method: bulking up its wealth and money-management companies whereas protecting its maintain on buying and selling and dealmaking — positions Morgan Stanley to do effectively in good instances and dangerous. That places it in a category of its personal.
But this isn’t mirrored in its valuation. Shares in Morgan Stanley have fallen only one per cent for the reason that begin of the 12 months, the perfect efficiency among the many Massive Six banks. However on a price-to-book worth foundation, the inventory is buying and selling at only one instances. That’s the identical as Goldman and trails behind JPMorgan’s 1.four instances.
This implies Morgan Stanley could also be undervalued. It’s extra diversified than Goldman. And in contrast to JPMorgan, the group has little publicity to client credit score. It will tackle higher significance the longer the pandemic recession drags on. Whereas the dreaded widespread defaults and mortgage losses haven’t but materialised, it could solely be a matter of time. When that occurs, Morgan Stanley may be the place to be.
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