Morgan Stanley, which executed a pair of blockbuster acquisitions over the last two years, "would do more deals if they fit with our strategy," Chairman and CEO James Gorman said.
The company bought asset manager Eaton Vance Corp. for $9.15 billion in early 2021 and discount brokerage E*TRADE Financial Corp. for $11.02 billion in late 2020.
Gorman said Morgan Stanley is focused on maintaining a capital "buffer on a buffer" to protect against risks, citing "what we've experienced with the markets in the last quarter [which] were extremely volatile."
"You have to anticipate the worst and make sure you're prepared for that," he said on the company's first-quarter earnings call. But, he added, "We clearly have done that."
Gorman said Morgan Stanley would continue to repurchase shares, but is open to additional transactions. "We want to stay true to our strategy and our strengths in our three core businesses," he said. Morgan Stanley has segments in institutional securities, wealth management and investment management.
The company continues to see opportunity in the workplace retirement space, which it sees as an entry point to offer new customers broader financial services, he added. Morgan Stanley bought the retirement plan company Cook Street Consulting Inc. in the first quarter.
Workplace retirement is "the next frontier," Gorman said. "We're very early days of that, but I think that's a huge opportunity." Gorman said the company is also interested in building up in wealth management and asset management outside the U.S., where "we punch below our weight."
Morgan Stanley's standardized common equity Tier 1 ratio did fall sharply in the first quarter, to 14.5% from 16.7% the year prior, as risk-weighted assets increased on higher client activity and more volatility, and as higher interest rates hurt the market value of securities holdings. Morgan Stanley's current regulatory minimum CET1 ratio is 13.2%.
Morgan Stanley's own M&A advisory revenue nearly doubled to $944 million in the first quarter from the prior-year period, reflecting higher levels of deal completions. Equity issuance revenue fell 83% to $258 million and fixed income issuance revenue fell 32% to $432 million, as volatility and macroeconomic conditions restrained activity.
"Investment banking pipelines remain healthy across sectors and regions," CFO Sharon Yeshaya said. "However, the conversion from pipeline to realized will be largely dependent on market conditions going forward."
Gorman said that, historically, quarterly investment banking revenue can be extremely volatile, but "it's actually remarkably stable on an annual basis."
Morgan Stanley posted robust trading revenue in the first quarter, with fixed income down 1% from a strong year-prior to $2.92 billion. Equities were up 10% year over year to $3.17 billion, though the year-ago period was hurt by $911 million of losses related to the meltdown of Archegos Capital.
"While the outlook for the remainder of the year is difficult to predict," Yeshaya said, "the second quarter has started constructively and clients remain engaged."
