Morgan Stanley and Bank of America both reported third-quarter earnings that smashed expectations, driven by Wall Street's insatiable AI-driven investment banking revival as markets shook off months of uncertainty.
MS delivered record revenues of US$18.2 billion, marking an 18% leap from the year-ago quarter, while Bank of America posted $28.1 billion in revenues - up 11% year-over-year.
Both banks' results landed more than $1 billion north of analyst projections, with investment banking and wealth management driving performances, as the divisions staged a comeback from 2024's deal drought.
Investors lapped up the news, with Morgan Stanley gaining 5% to and Bank of America rising 4-4.5% after hours to $52.42 - almost touching a new 18-year high.
Analysts characterised Morgan Stanley's performance as delivering a significant surprise of nearly 30% according to FinancialContent Business Wire, primarily powered by the investment banking and equity trading resurgence.
Investment banking roars back
Morgan Stanley's investment banking revenues vaulted 44% to $2.1 billion, while Bank of America's investment banking fees topped $2 billion for the first time since early 2022, climbing 43% year-over-year.
“Institutional Securities results were driven by our Equity business and a rebound in Investment Banking activity,” Morgan Stanley CEO Ted Pick, highlighting the firm's earnings per share of $2.80 and return on tangible common equity of 23.5%.
Equity underwriting revenues at Morgan Stanley more than doubled from the prior year and advisory revenues jumped on the heightened M&A activity, while debt underwriting benefited from companies refinancing ahead of potential rate volatility.
Faster merger approvals and relaxed regulatory guidelines from the Trump administration preceded the dealmaking surge.
Both banks anchored major 2025 transactions, with Bank of America participating in Union Pacific's $71 billion acquisition of Norfolk Southern while Morgan Stanley advised on Keurig Dr Pepper's $18 billion purchase of JDE Peet's.
Bank of America captured the #3 ranking in investment banking fees, gaining 136 basis points in market share according to Dealogic data.
The firm's Global Banking segment notched net income of $2.1 billion, with average deposits swelling 15% to $632 billion.
Trading and wealth management
Beyond investment banking, trading operations cleared expectations across both institutions.
Morgan Stanley's equity trading revenues catapulted 35% to $4.1 billion, hitting record results in prime brokerage, while fixed income trading rose 8% to $2.2 billion, propelled by credit products and commodities.
Bank of America's sales and trading revenue, meanwhile, advanced 9% to $5.4 billion, marking a 14th consecutive quarter of year-over-year growth.
Fixed income trading lifted 5% while equities jumped 14%, both excluding debit valuation adjustments.
"This quarter's performance demonstrated the earnings power of our diversified model," Bank of America CFO Alastair Borthwick said.
“We believe our investments in technology, talent and client experiences aided in an improved efficiency ratio as well as operating leverage.”
Morgan Stanley's wealth management business reported revenues of $8.2 billion, up 13% from the prior year, with asset management fees climbing on elevated market valuations.
Total client assets across Morgan Stanley's wealth and investment platforms reached a whopping $8.9 trillion.
Bank of America's own wealth and investment divisions posted a net income rise of 10%, with overall client balances reaching $4.6 trillion - driven by higher market valuations and positive net flows of $24 billion.
Improved capital returns
Bank of America distributed $7.4 billion to shareholders through dividends and buybacks, while lifting its quarterly dividend by 8%.
Meanwhile, Morgan Stanley repurchased $1.1 billion in common stock and declared a $1 quarterly dividend.
Both banks' profits beat estimates by more than $1 billion, according to Bloomberg's Sridhar Natarajan, who noted it was a very special quarter for Morgan as its trading revenue finally surpassed rival Goldman Sachs.
Morgan Stanley CEO Ted Pick told analysts that "macro uncertainty and enormous opportunity uncomfortably coexist" in the current environment, and that the "daisy chain" of financing needs probably takes us back to something that feels like the mid 90s, according to Yahoo Finance coverage.
XTB analysts noted Morgan Stanley stood out with wealth management revenues and record equity trading performance, while observing that Bank of America "demonstrated skillful asset and liability management amid rising interest rates".
