Morgan Stanley Delivers Record Q3 Earnings on Deal Revival

Morgan Stanley reports record $18.2B Q3 revenues as dealmaking revives, equities climb, and AI-driven advisory strengthens Wall Street momentum

Key Takeaways

• Total net revenues reached a record $18.2 billion, up 18% year-over-year, with net income applicable to Morgan Stanley climbing 45% to $4.6 billion and diluted EPS advancing 49% to $2.80, yielding a 23.5% return on tangible common equity.
• Investment banking fees soared 44% to $2.1 billion, driven by a 25% rise in advisory revenues to $684 million from higher completed M&A transactions, amid global Q3 volumes hitting $1 trillion—up 27% year-over-year.
• Wealth management net new assets expanded to $81 billion, up from $63.9 billion last year, supporting $8.9 trillion in total client assets, while AI investments project $3 trillion in sector spending through 2028, bolstering fintech advisory like the $40 million Cover Whale raise led by the firm.

Introduction

Morgan Stanley reported blockbuster third-quarter results on October 15, 2025, capping a period of accelerating deal activity and market resilience with record revenues and profitability. Total net revenues rose 18% year-on-year to $18.2 billion, net income applicable to the firm jumped 45% to $4.6 billion, and diluted earnings per share advanced 49% to $2.80—delivering a 23.5% return on tangible common equity, up from 17.5% in Q3 2024. These figures, which topped analyst estimates by 9%, were underpinned by robust client flows and prompted a 5.36% stock surge in early trading.

The quarter’s strength extended prior momentum, with Q2 revenues at $16.8 billion and investment banking fees up 32%, but Q3 marked a pinnacle in advisory and equities amid a broader M&A revival. Chairman and CEO Ted Pick stated:

Our Integrated Firm delivered an outstanding quarter with strong performance in each of our businesses globally. Consistent execution of our strategy led to record revenues of $18.2 billion, EPS of $2.80, and a ROTCE of 23.5%.

Noninterest expenses rose modestly to support AI and digital enhancements, bringing the efficiency ratio down to 67% from 72% a year earlier. Looking ahead, Pick emphasized the firm’s readiness to navigate potential headwinds, including election-related uncertainties, by leveraging diversified revenue streams and disciplined capital allocation.

Key Developments

Performance was broad-based, with all three segments posting revenue and pretax income gains year-over-year. Institutional Securities led with $8.5 billion in net revenues, up 25% from $6.8 billion, and $3.2 billion in pretax income, up from $1.9 billion—fueled by investment banking fees of $2.1 billion, a 44% increase. Advisory revenues climbed 25% to $684 million, marking the strongest quarter since 2021 as M&A momentum returned across tech and industrials; equity underwriting doubled to $652 million via IPOs and convertibles, and fixed income underwriting rose 39% to $772 million on loan issuances. Equities generated $4.1 billion, up 35% with record prime brokerage, while fixed income added $2.2 billion, up 8% on credit and commodities activity.

Meanwhile, Wealth Management contributed $8.2 billion in net revenues, up 13% from $7.3 billion, with $2.5 billion in pretax income and a 30.3% margin. This underscores Morgan Stanley’s pivot toward capital-light, fee-based growth—now the backbone of group earnings—with asset management fees reaching $4.8 billion, up from $4.3 billion, supported by $2.7 trillion in fee-based client assets (up from $2.3 trillion) and $41.9 billion in fee-based flows. Transactional revenues surged 22% to $1.3 billion on client activity, net interest income edged up to $2.0 billion, and net new assets hit $81 billion—versus $63.9 billion last year—with loans expanding to $173.9 billion. Provisions for credit losses turned favorable at $(1) million, down from $11 million.

Elsewhere in the firm, Investment Management rounded out with $1.7 billion in net revenues, up 13%, and $364 million in pretax income, up from $260 million, as assets under management grew to $1.8 trillion from $1.6 trillion on $16.5 billion in long-term net flows—more than double last year’s $7.3 billion. Asset management fees increased to $1.5 billion, and performance-based income rose to $117 million. These steady gains reflect disciplined portfolio management in a volatile equity environment, reinforcing the segment’s role as a steady earnings pillar.

Building on Q2’s $3.5 billion net income, Q3’s zero provision for credit losses—down from $79 million—reflected a more constructive macro outlook, with the firm maintaining a 15.2% CET1 ratio.

Market Impact

Across peers, Morgan Stanley’s results amplified a banking sector rebound, where investment banking fees at firms like JPMorgan and Bank of America also climbed on deal revival—Q3 global M&A volumes hit $1 trillion, the highest since Q4 2021. The 5.6% operating leverage—revenues outpacing expenses—bolstered capital returns, with the firm repurchasing shares and paying dividends amid a standardized CET1 ratio of 15.2%, up from 15.1% last year. Credit quality held firm, with nonperforming loans stable and no net charge-offs highlighted.

Equities trading, up 35% to a record, outshone rivals amid market highs—S&P 500 and Nasdaq up 40-51% year-to-date—while the expense efficiency ratio of 67% underscored disciplined cost management, including 2-3% global staff reductions offset by AI talent hires. Shares rose 5.36% post-earnings, reflecting investor confidence in the integrated model’s durability.

Strategic Insights

Q3’s advisory revenue growth—25% to $684 million—capitalized on a megadeal wave, with Morgan Stanley advising on transformative transactions like the $85 billion acquisition of Norfolk Southern by Union Pacific—the largest in five years—and a $23 billion mobility segment spin-off, alongside several $10B+ deals across financials and software that underscored renewed appetite for large-cap M&A. Year-to-date, the firm guided 510 deals over $1 billion (up 20%) and 42 over $10 billion—the highest ever—spanning tech (42% of megadeals), financials, and energy. Financial sponsor activity hit $85 billion in Q3 (up 40%), with take-privates at decade highs.

In fintech, Morgan Stanley led a $40 million raise for Cover Whale in July and advised on deals like Capgemini’s $3.7 billion acquisition of WNS for AI-powered operations and Advent’s $2.5 billion buy of Sapiens. A September M&A update noted 40% of investors see AI playing a significant role in future deals, with early adoption in due diligence and valuation—aligning with the firm’s $3 trillion AI investment forecast through 2028, emphasizing software revenues reaching $1.1 trillion. Internally, AI coding tools like Devgen.ai enhanced quant teams, while a $4 billion tech budget (part of broader commitments) targeted platform intelligence.

Global Co-Head of M&A John Collins remarked: “Large cap M&A activity is accelerating… The concept of mega-transactions and dream deals is back on the radar.” Risks include integration challenges, but a constructive macro—easing rates, high equities—supports sustained activity.

Data and Forward Outlook

Total client assets across wealth and investment management swelled to $8.9 trillion, with $81 billion in net new wealth assets and $16.5 billion in long-term investment flows—more than doubling last year’s pace. Fee-based assets hit $2.7 trillion, up from $2.3 trillion, driving 13% revenue growth in both segments.

No formal Q4 guidance was issued, but Pick affirmed momentum, with year-to-date M&A at $2.6 trillion (up 24%) on track for $3-3.5 trillion annually—the highest in a decade. AI monetization could yield hundreds of millions in gains, per executive forecasts, amid 62% of investors eyeing more 2026 activity for scale and synergies. A 100-basis-point rate cut might pressure net interest income, but deal backlogs and AI efficiencies provide buffers.

Conclusion

Morgan Stanley’s Q3—record $18.2 billion revenues, 45% net income growth, and a deals advisory surge—exemplifies the integrated firm’s prowess in a reviving M&A landscape, amplified by strategic AI positioning.

Extending Q2’s gains, these results fortify resilience amid macro shifts. If Q2 proved Morgan Stanley’s resilience, Q3 confirmed its resurgence—positioning the firm as both a bellwether of global dealmaking and a case study in how AI is redefining Wall Street’s profit engines.