Morgan Stanley’s investment bankers scored their best quarter ever, boosted by a torrid pace of dealmaking.

The division hauled in US$2.85 billion in the third quarter, a 67 per cent jump that topped analysts’ estimates and helped drive firmwide profitability higher. Equity-trading revenue surged 24 per cent to US$2.9 billion, the firm said in a statement Thursday.

“We are firing on all cylinders again,” Chief Financial Officer Sharon Yeshaya said in an interview.

Wall Street’s top firms have been capitalizing on a golden era for dealmaking and trading since the start of the pandemic. Now, as a trading slowdown takes hold, investment bankers have been picking up the slack, with booming capital markets and merger-advisory businesses generating record fees.

Bank of America Corp. said earlier Thursday that its third-quarter results got a boost from higher fees at the dealmaking unit. JPMorgan Chase & Co. said Wednesday its mergers-and-acquisitions business posted its best quarter ever. 

Shares of Morgan Stanley, which advanced 44 per cent this year through Wednesday, climbed 2.9 per cent to US$101.39 at 8:23 a.m. in early New York trading. The New York-based firm’s gains throughout the pandemic have been outpacing rivals with consumer operations, which suffered during the crisis.

Morgan Stanley’s investment-banking revenue surpassed the average estimate of US$2.1 billion. Advisory fees more than tripled to US$1.27 billion and equity underwriting climbed 16 per cent to US$1 billion.

“The near-term continues to be very healthy,” Yeshaya said. The bank is “not seeing degradation in the activity level.”

The bank’s advisory business had a less stellar first half of 2021, when it gave up ground to some of the firm’s closest rivals and got off to its weakest start in at least a decade. 

Morgan Stanley boosted pay for its junior bankers for a second time in August, a sign of its resolve to fight for talent amid more intense competition. 

Trading revenue surpassed last year’s figures, with the division pulling in US$4.52 billion, higher than last year’s third quarter figure of US$4.27 billion.

Wealth-management revenue totaled US$5.94 billion, an increasingly growing share of the bank’s overall revenue pool that’s less volatile than its institutional-securities business, which houses traders and dealmakers. 

Despite a slowdown in activity at E*Trade, the retail broker Morgan Stanley acquired in 2020, it’s still on pace with last year and triple the pre-pandemic level, indicating retail trading investments haven’t waned, Yeshaya said.

The bank’s only major hiccup was in its investment-management business, where it had asset outflows tied to an asset manager’s redemption. It also had a US$17 million loss on performance-based income tied to an investment in Asia, according to the statement.

Here’s a quick summary of other key numbers:

  • Net income rose 37 per cent to US$3.7 billion, or US$1.98 a share.
  • Revenue climbed 26 per cent to US$14.8 billion.
  • Debt-underwriting revenue rose 19 per cent to US$567 million.
  • Net new asset flows were a record US$135 billion in the wealth-management business.