MS Conf Call: More Bullish, Positive For UBS

Morgan Stanley conf call included the phrase “early innings of a multi-year M&A cycle”. This highlights the bullish feeling of mgmt (more than we’ve heard in years) and underpins today’s equity move. That move is not about increased capital return to equity holders but business growth, in our view – which should be credit positive.

• “Leading indicators… progress positively”: CFO Yeshaya quite clear about the “pull forward” issue that GS raised and seeing a better outlook for IB revenues, we feel. She even alluded to “preliminary reemergence of sponsor activity”. Short-term geopolitics may impact pipeline conversion now but the IB outlook here is more positive than we have heard in some time. This is positive for UBS but that firm has idiosyncratic capital issues right now.
• Asset and wealth businesses continue to be machines: wealth revenues grew 5% y/y but, more importantly, net new money was USD94.9bn, implying over 7% annualised growth – well above industry norms (of c.4-5%). Revenue growth was muted in the period (but better than consensus) but these capital-light businesses are highly cash generative.
• Capital returns: mgmt indicated its uses as being supporting clients, investing in the business (technology and people) and then returning capital to equity holders. It describes itself as judicious. So, today’s equity move is more about the operating outlook, in our view, than expectations of low growth and increased buybacks. We take this as a credit positive.