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Morgan Stanley's (MS) 2Q25 earnings report showcased a solid performance with both EPS and revenue surpassing analysts' expectations, but compared to rival Goldman Sachs (GS), which reported a 26% yr/yr surge in investment banking revenue, MS’s results were less impressive, particularly in its investment banking business. This divergence in performance has pressured MS shares, despite the company’s positive steps to enhance shareholder value, including a reauthorized $20.0 bln stock repurchase program and a dividend increase of $0.075 per share to $1.00.

• The Institutional Securities segment, MS’s largest revenue driver, generated $7.6 bln in net revenues, reflecting an 8.5% yr/yr increase. However, investment banking revenue disappointed, falling 5% to $1.54 bln, with Advisory revenue dropping 14% to $508 mln, a stark contrast to GS's 71% Advisory revenue surge to $1.17 bln. This decline was attributed to a slowdown in midsize M&A and sponsor activity, compounded by market uncertainties around U.S. tariffs and geopolitical tensions, which have caused some transactions to pause.
• On a positive note, equity underwriting was a bright spot, with revenues rising 42% to $500 mln, driven by strong activity in follow-on offerings, convertible securities, and a rebound in IPOs, reflecting MS’s role as a lead underwriter in high-profile deals like CoreWeave’s (CRWV) $1.5 bln IPO.
• On the trading side, the unit delivered solid but less robust results compared to GS. Equity trading revenues grew 23% yr/yr to $3.7 bln, driven by strong client activity in prime brokerage and derivatives, particularly in Asia, where market share gains were notable. This growth, while impressive, trailed GS’s 36% increase in equities revenue to $4.3 bln, reflecting GS’s stronger positioning in intermediation and financing amid volatile market conditions.
• Fixed Income, Currency, and Commodities (FICC) trading revenues matched GS’s performance, rising 9% to $2.18 bln, fueled by heightened client demand for hedging in macro and FX products as investors adjusted portfolios in response to tariff-related stagflation concerns.
• The Wealth Management segment was a standout, with net revenues increasing 14.7% yr/yr to $7.8 bln, surpassing estimates of $7.35 bln. This growth was driven by a 16% rise in asset management revenues, supported by record client assets under management of $6.5 trillion and $59 bln in net new assets, reflecting strong fee-based flows. Transaction revenues also rose 17%, propelled by broad-based increases in client activity across equities, fixed income, and structured products, particularly in technology and industrial stocks.

MS’s Q2 results were solid, with strong contributions from Wealth Management and trading, but they paled in comparison to GS’s exceptional performance, particularly in investment banking. This divergence has driven capital flows from MS to GS shares, as investors favor GS’s superior growth in Advisory and equities trading.