For Goldman Sachs and Morgan Stanley, boring is beautiful

Thu Apr 17, 2014 2:32pm EDT
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By Lauren Tara LaCapra

(Reuters) - Investment banks Morgan Stanley and Goldman Sachs Group Inc posted better-than-expected quarterly earnings on Thursday, helped by gains in merger advisory and stock underwriting.

The results underscored how businesses viewed as stodgy before the financial crisis are becoming critical drivers of earnings for investment banks now. Goldman's investment management, stock underwriting and merger advisory businesses logged big gains. Morgan Stanley did well in those areas, as well as in wealth management and bond underwriting.

Across Wall Street, merger advisory fees grew 4.8 percent in the first quarter over the same quarter last year, while stock underwriting revenue surged 18.8 percent, Thomson Reuters Deals Business Intelligence data show. Growth in initial public offerings, where fees are often highest, was particularly robust.

Morgan Stanley was the biggest stock underwriter globally in the first quarter, while Goldman earned the most fees from merger advisory, Thomson Reuters data show.

Both banks benefited from these businesses, but Morgan Stanley got far more of a boost than Goldman did. Morgan Stanley, which has made a conscious effort to focus on slower-growing businesses like wealth management after nearly failing during the financial crisis, posted a 55 percent gain in shareholder earnings, and its shares rose 3.6 percent to $30.96.

Goldman Sachs posted its best investment banking revenues since 2007 and performed better than analysts had forecast. But the bank, which has made fewer strategic changes than Morgan Stanley since the crisis, posted an 8 percent decline in revenue and its profit for shareholders fell 11 percent. It shares rose 0.4 percent $157.80 in early afternoon trading.

"Morgan Stanley's management has made some excellent moves over the last three or four years, and you're seeing the results now," said Robert Lutts, chief investment officer at Cabot Money Management in Salem, Massachusetts.

Devin Ryan, an analyst at JMP Securities, noted that with these changes Morgan Stanley is positioned to perform well in the coming years. He has an "outperform" rating on Morgan Stanley, and a "market perform" rating on Goldman.   Continued...

The Goldman Sachs logo is displayed on a post above the floor of the New York Stock Exchange in this file photo taken September 11, 2013. REUTERS/Lucas Jackson/Files