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Morgan Stanley's profit rose more than 40% in the second quarter, but the bank reported slowing growth in its core asset-management business.
Morgan Stanley said its quarterly net income was $3.1 billion, up from $2.2 billion a year ago and beating analyst expectations.
The surge was fueled by a more than 50% increase in investment banking fees from a year ago to $1.6 billion.
A revival of investment banking has been a theme in the performance of major banks over the past two quarters.
After two years in which rising interest rates prompted investors to shy away from deals and initial public offerings, investment-banking revenue rose 50 percent at JPMorgan and 21 percent at rival Goldman Sachs in the quarter.
Morgan Stanley Chief Executive Ted Pick told analysts that unless there is an economic downturn, “I think we will see a resumption of more normal M&A activity in the coming quarters and, really, within the next few years.”
Morgan Stanley shares rose more than 2% in morning trading in New York on Tuesday.
The bank's $5.7 trillion asset management division missed analysts' growth expectations: The bank added just $36.4 billion in net new assets, well below expectations of about $57.5 billion and down from about $90 billion a year ago.
Wealth management's net new assets in the first half of the year were the lowest since 2020.
Morgan Stanley Chief Financial Officer Sharon Yeshaya argued that increased tax payments due to the April US tax deadline were part of the reason for the slowdown.
“We believe both tax-related outflows and increased spending, particularly among high-net-worth clients, impacted inflows this quarter,” she told analysts.
Yeshaya said that even though JPMorgan, Citigroup and Wells Fargo cited signs of financial stress among lower-income customers last week, their wealthier clients were spending lavishly during the quarter.
Wealth management has been a big driver of Morgan Stanley's growth in recent years, further fueled by its acquisition of online trading platform ETrade in 2020. But expansion has slowed recently as rising interest rates make it harder to attract client assets.
Margins in this business have also shrunk as wealthy clients have been able to park their funds in cash and other more liquid products that offer higher returns in a rising interest rate environment but lower profit margins for banks.
