Best global investment bank:
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Look closely at the list of shortlisted firms for this year’s best global investment bank award. All four are US-based institutions. No European bank was a serious contender.
It’s the same story for the shortlists in two of the product lines that go a long way to deciding these awards: mergers & acquisitions and equity capital markets. Only in the debt capital markets category do non-US firms make a case for their inclusion.
These shortlists tell the story of global investment banking in the years since the financial crisis. US markets have boomed across M&A, equities and debt. As has always been the case, the local firms dominate. But don’t be fooled into thinking that they are resting on their domestic laurels. Morgan Stanley is this year’s best investment bank in Asia. Bank of America Merrill Lynch wins the equivalent award in western Europe. Citi, meanwhile, is the best investment bank for 2015 in central and eastern Europe, Latin America and Africa. The European firms that in previous years might have had a shot at this award – such as Deutsche Bank, Barclays and Credit Suisse – have an awful lot of catching up to do, if they ever will.
Any of the four shortlisted candidates here can make a convincing case for recognition. BAML, last year’s winner, continues to build businesses across geographies and all key product lines. Goldman is of course Goldman, the firm that generates easily the highest revenue per deal of any investment bank. Citi now has a top five presence across debt, equity and M&A, and a great markets business, both of which benefit from the firm’s now unique global footprint.
That said, there was a clear winner this year: Morgan Stanley. In large part that’s because of the turnaround of one of the great franchises under CEO James Gorman, which even a couple of years ago many thought would struggle to recapture its former glories. But it’s also because of the renewed vigour of its investment bank, which has demonstrated rare skill in providing advice and financing to clients for some of the most high-profile deals of the past 12 months.
That turnaround story is covered at some length in our feature, The reinvention of Morgan Stanley. Two aspects are worthy of note here. The first is the right-sizing of Morgan Stanley’s FICC business, an arduous process led by president of the institutional securities group Colm Kelleher.
FICC used to generate more than 30% of group-wide revenues and, as recently as 2011, accounted for almost $400 billion in risk-weighted assets. By the end of 2014, that division’s RWAs were well under $200 billion, and FICC revenues were just 12% of firm-wide revenues. That represents a much more sustainable presence in light of the regulatory changes that have structurally impacted the market. But first quarter 2015 FICC revenues of $1.9 billion showed that the division still had sufficient scale to benefit from upturns in market activity. As Kelleher says: “We’re not a Morgan Stanley FICC story any more, as we were for a number of years; now we’re part of the overall FICC challenge story.”
Then there’s the wealth management business, transformed by the acquisition of Smith Barney from Citi, which now accounts for around 40% of firm-wide revenues. It not only gives a stable earnings base to the whole business – margins are up to 22% – but it also gives a huge distribution boost to Morgan Stanley’s markets business through its $2 trillion of assets under management.
|Our investment bank is fantastic and remarkably resilient|
Gorman describes the new-look Morgan Stanley as having the ballast of wealth management, and the engine of the institutional securities group. And the latter, under Kelleher, is firing on all cylinders.
Morgan Stanley competes head-on with Goldman to be the top-ranked equities and M&A firm globally. The investment bank as a whole is much more joined up as a business, and that can be seen in some of the big debt, loan and leveraged financings the firm has committed to clients it is advising in M&A deals, such as Abbvie, Shell and Sky. In M&A overall, Morgan Stanley advised on five of the top 10 deals of the past 12 months; it is also working on the two biggest transactions currently in the market, Shell/BG and Charter/Time Warner Cable. In equities, the firm took a lead role on a huge number of $1 billion-plus offerings, such as Citizens, Alibaba and Ping An.
Gorman clearly believes that Morgan Stanley is on the right path, for now and for the future. “The investment bank is fantastic and remarkably resilient,” he says. “So is our equities business, which is the best in the world. In FICC, we have a business which is roughly 20% of the whole firm, where, with the right market conditions, there is significant upside potential. We have the ballast of wealth management and retail. Our bet is that the market will like that combination.”
Under the leadership of James Gorman, Morgan Stanley has carved out a unique position in global banking. It remains a great investment bank. Its much-maligned FICC division now looks fit for purpose. And its US wealth management arm gives the firm new stability and strength. Most important of all, the disparate parts of a once-divided business are delivering the benefits of the whole firm. And the markets are starting to realize the potential of a new Morgan Stanley as well.