|Morgan Stanley reclaims the |
investment banking throne
|© 2017 Euromoney|
Awards for Excellence 2017
James Gorman, the chief executive of Morgan Stanley, has spoken about how his firm lives in the same reality as its competition. His comments were in the setting of whether or not Morgan Stanley would see revenue declines in its fixed income business similar to those indicated by other big Wall Street firms. But the comments could apply in a different, and more important, context as well.
The restructuring of Morgan Stanley is over. It took at least five years, and more realistically eight, to achieve – all under Gorman’s watch. So read the message like this: ‘The time for excuses is over. We have the right platform. We have the right business mix. Now go and deliver.’
A senior investment banker agrees: “This not a comeback kid or survival story. Morgan Stanley today is about growth in market share and wallet share, it’s about our excellent culture and it’s about doing more for clients.”
Has Morgan Stanley delivered? Over the last 18 months or so, the answer must be a resounding yes.
Let us start with the business that Morgan Stanley is perhaps best known for, and is traditionally strongest in: advisory. By any measure, the firm has had a great 12 months. It ranked second to Goldman Sachs over that period and has closed the revenue gap to its great rival. But it is the range and complexity of the deals it has been involved in that really stand out.
|James Gorman, the chief executive of Morgan Stanley|
Morgan Stanley is becoming the go-to house for defence mandates, whether against unsolicited bids or in taking on activist investors. It played a crucial role in seeing off bids for Unilever (from KraftHeinz) and Norfolk Southern (from Canadian Pacific), two of the most high-profile M&A situations of the last 12 months.
The firm has worked hard to improve its access to the chief executives and boards of some of the world’s biggest companies. That is now starting to show in the rise in the number of sell-side mandates Morgan Stanley wins. A great example is EMC, sold to Dell in a $64 billion acquisition.
Its position as a trusted bank that can execute highly confidential deals is evident in its position as a sole adviser to many acquirers, such as Microsoft in its $28 billion takeover of LinkedIn and Liberty Media in its $8 billion acquisition of Formula One. For the 12 months from April 1, 2016, Morgan Stanley had a 40% lead in deal value over its closest rival for sole-advised buyouts.
In financing, Morgan Stanley is fast improving. It has always had a leading equity capital markets franchise, and continues to have a key role on some of the most high-profile deals, such as the Snap Inc IPO, UniCredit’s $13 billion rights issue and Postal Savings Bank of China’s IPO.
In debt, it has moved beyond being an event-driven franchise and increasingly competes where it chooses to play. Overall, its traditional investment bank is notable for its global breadth and depth. For example, it was the clear leader in investment banking in Asia over the last 12 months.
This year, the evolution of its markets business also deserves recognition. For four years, Morgan Stanley has been the stand-out global equities franchise and its market share now regularly tops 20%. In fixed income, the tough decision to make dramatic cuts two years ago is paying dividends. Despite 40% lower risk-weighted assets, the firm is actually gaining market share. From the second quarter of 2016 to the first quarter of 2017, its share of wallet among the top nine global firms in fixed income went up 272 basis points to 8.4%. The question of whether Morgan Stanley should stay in FICC, or whether its fixed income franchise is fit for purpose, has surely been answered.
But the story of Morgan Stanley’s resurgence goes beyond the numbers. This is a far more joined-up organization than it was even four years ago. Collaboration is a key word in this – between wealth advisers and investment bankers, between M&A bankers and capital markets executives and, perhaps most importantly of all, between markets bankers in equities and fixed income.
It is a bank with a ruthless attention to returns on capital in all parts of the business, led from the front by the firm’s president Colm Kelleher. It is among the best capitalized banks in the world with a common equity tier-1 ratio of 16.9% and it produced the best quarter in its recent history in Q1 2017, delivering a return on equity of 10.7%.
More than all of that, Morgan Stanley has its momentum back. It is confident in its culture and its business mix. Increasingly, it’s not a firm to watch – it’s the one to beat.