UPDATE 5-Morgan Stanley profit beats estimates on dealmaking boost, CFO cites record pipeline

Morgan Stanley's profit beat estimates in the third quarter as a surge in dealmaking drove revenue to records, and the company's finance chief said its investment banking pipeline is at "all-time highs."

"It is certainly possible that next year we could break 2021 deal volume records," Chief Financial Officer Sharon Yeshaya told Reuters in a phone interview on Wednesday. The IPO pipeline, in particular, shows a lot of activity coming from financial sponsors, she added. Morgan Stanley's third-quarter profit beat market expectations with record revenue, led by a 44% rise in investment banking revenue and sharp growth in equities trading.

The wealth management business reached $8.9 trillion in assets under management, closer to the long-standing goal of $10 trillion, and reached a pre-tax margin of 30.3%. A string of large deals pushed global mergers and acquisitions activity past the $3 trillion mark this year. A resilient U.S. economy, optimism around interest-rate cuts and lighter regulations under the Trump administration have spurred businesses to do deals or tap capital markets. "We had very strong results in the investment banking, and we're number one again in the equities business, an area we have been investing." Yeshaya added the bank is seeing better macroeconomic conditions.

"We have higher expectations now for GDP than when we were sitting at the end of the second quarter," the CFO said, adding companies are seeing lower debt costs. Markets are hovering near record highs and the U.S. Federal Reserve resumed its rate-cutting cycle in September. SHARES SOAR Morgan Stanley shares rose 4.1% in premarket trading on Wednesday. They have gained 23.6% this year as of the last closing price.

"This is a great quarter for MS with beats across the board, and we expect the reaction to be supportive," Keith Horowitz, an analyst at Citigroup, wrote in a note. "A strong wealth management business can support ongoing activity in the investment banking channel," said Christopher Marinac, director of research at Janney Montgomery Scott, citing Morgan Stanley's high margins in wealth management.

The bank's profit surged to $4.6 billion, or $2.80 per share, for the three months ended September 30, beating expectations of $2.10 per share, according to estimates compiled by LSEG. Total quarterly revenue was a record $18.2 billion, surpassing expectations of $16.7 billion. DEALMAKING BOOST

Morgan Stanley's investment banking revenue jumped 44% to $2.11 billion from a year ago. The bank landed key roles in major deals, including advising freight rail giant Union Pacific on its $85 billion acquisition of smaller rival Norfolk Southern - the largest transaction announced globally this year. Wall Street rivals, including JPMorgan Chase and Goldman Sachs, also benefited from a surge in M&A and initial public offerings. Morgan Stanley's equity underwriting revenue jumped 80%. The bank was among the joint bookrunners on large IPOs during the quarter, including design software maker Figma and Swedish fintech Klarna.

Fixed income underwriting revenue surged 39% to $772 million in the quarter, driven by higher loan issuances. TRADING BOOST Trading, too, was a bright spot as the benchmark S&P 500 index gained roughly 8% in the third quarter and hit multiple record closing highs in September, historically a weak month for stock markets. Equities revenue surged 35% to $4.12 billion, driven by record results in prime brokerage.

WEALTH MARGINS Revenue from wealth management - a key focus for Morgan Stanley - jumped 13% to a record $8.2 billion in the quarter, buoyed by rising market valuations. Total client assets across wealth and investment management reached $8.9 trillion in the quarter, getting closer to the bank's long-standing target of managing $10 trillion in client assets. Morgan Stanley also secured a key win last month as the Federal Reserve agreed to shrink how much capital the bank must hold as a result of its most recent "stress test" results. The CFO said discussions with regulators over capital requirements have been "encouraging."