The period of this year’s Euromoney Awards for Excellence, covering almost exactly the complete market cycle of the pandemic, exposed the need for an investment bank franchise to be unusually adaptable if it was to serve clients over that period.
The best would, from the very start of the period, be able to get their own remote operations functioning in short order and guide clients through the immediate concerns of survival. This would demand a rapid assessment of which market windows were opening and closing. But as conditions changed, often in the blink of an eye, the best would also be called upon to spot strategic, often aggressive, opportunities for clients.
Morgan Stanley showed the way to meet these challenges with aplomb and wins this year’s award for the US’s best investment bank.
Tom Miles, co-head of Americas M&A, sums up the challenge. “The period had something for everyone,” he says. “We saw the equivalent of an entire five-year cycle happen in six months.”
And in that turmoil the bank came good. Revenues in its institutional securities division rose 47% over the four quarters under review, just pipping the 44% increase at Goldman Sachs. Institutional securities pre-provision profits before tax soared by 121%, far and away the best increase of any of its US peer group – the next biggest increase being a 77% rise at JPMorgan.
Mo Assomull, global head of capital markets at Morgan Stanley, says that the way in which the investment bank’s primary and secondary market franchises work together and feed off each other demonstrates how chief executive James Gorman and Ted Pick, co-president, head of the institutional securities group, and co-head of firm strategy and execution, have structured the firm’s approach.
“Flow begets flow – we have taken share in primary issuance and secondary markets, and it goes both ways,” says Assomull. “When we are pitching a capital markets deal, to be able to show the client that we are the number-one or two trader is very helpful.
“This is not a coincidence, it is deliberate – this is an integrated investment bank approach. It is a strategic imperative for James and Ted that we all think this way.”
Bolt-on acquisitions have also helped. In October the bank closed the purchase of online brokerage E-Trade, while in March 2021 it closed on asset management firm Eaton Vance.
We are now part of a bigger platform for clients and that is also helping us originate
Mo Assomull
The acquisitions completed the strategy that the firm embarked on 10 years earlier, which was to shift the balance of its businesses so that half of the firm’s activity came from the wealth and investment management areas, and half from its more capital-intensive investment bank. But doing this has not meant neglecting the investment bank – quite the opposite, in fact, since it has made the platform a more attractive one for clients.
“What made it easier for us is that the firm has evolved with the addition of E-Trade, Shareworks and Eaton Vance. We are now part of a bigger platform for clients and that is also helping us originate,” says Assomull. “Small and private companies on our Workplace platform provide both the institutional and wealth businesses with an opportunity to cover and monetize a broader client set.”
There are highlights all across the firm. Equity capital markets revenue is up 150% in the most recent quarter at more than $1.5 billion for the first time ever. Morgan Stanley’s debt capital markets business is, like that of Goldman Sachs, a more selective franchise than at JPMorgan, for example, but its record results in the second quarter of 2020 and then the first quarter of 2021 showed how it could capture its share of periods of high client activity.
Of the big five US investment banks, Morgan Stanley has – since a cost-cutting overhaul back in 2015 – the smallest fixed income sales and trading business. But it is more profitable than ever and it can rapidly ramp up when conditions allow. Over the four quarters to the end of March 2021, revenues rose 56%, the most among its big US rivals.
The fact that the bank was able to post strong results across its investment bank in spite of its one serious misstep – a near-$1 billion loss related to the blow-up of Archegos Capital – is testament to the secure footing on which it now stands. Pick’s leadership of the unit has served him well: in May he was promoted to co-president of the overall firm, alongside wealth management head Andy Saperstein, and he is seen by many as the most likely successor to Gorman.
The strength and intelligence of the bank’s capital markets businesses underpin our decision to give this year’s award for North America’s best bank for financing to Morgan Stanley. But at the heart of the investment bank is the trusted relationship demonstrated by M&A advisory work. Morgan Stanley’s ranking for North America-related M&A rose in the period, from third to second place, the only one of the bulge bracket firms to see a rise.
“One of the reasons we have been successful as an investment bank is the connectivity with Mo and his capital markets team and the collaborative way we cover clients across the globe – and this period played to our strengths completely,” says Miles.
Examples abound, from AbbVie’s acquisition of Allergan, which included a $38 billion underwritten bridge in conjunction with Japanese joint venture partner MUFG; to advising Deutsche Telekom on the merger of its T-Mobile unit with Sprint; to the spin-off of Otis Elevator; and the acquisition of Immunomedics by Gilead Sciences.
Those deals, all in 2020, meant that the bank ranked top for $5 billion-plus deals between mid-March, when the pandemic hit the US in earnest, and the end of the year.
For Miles’s co-head Brian Healy, the period demonstrated better than ever the way in which the firm can deploy expertise in troubled times, wherever it is needed. He cites a series of deals where the firm provided critical advice.
“Look at the $20 billion of investments made into India’s Reliance Jio Platforms by the likes of Facebook, Google, KKR and Silver Lake,” he says. “The initial $5.7 billion investment by Facebook was in April 2020, at a time of maximum volatility and maximum uncertainty. This transaction demonstrated our global nature, our tech banking franchise and our ability to access sponsors.”
