Morgan Stanley with optimistic outlook after profit increase

Morgan Stanley gave an bullish outlook on Thursday after third quarter earnings were well above market expectations, fueled by record returns in investment banking and M&A advisory.

Chief Executive Officer James Gorman said investment banking pipelines remained healthy across all sectors and regions and that the current deal momentum is expected to continue.

"Investment banking itself and M&A are on fire," Gorman said in an interview with CNBC after the results. "We have global GDP growth, huge fiscal incentives, record-breaking low interest rates. People want to do business."

Global mergers and acquisitions have hit a new high, with $ 1.52 trillion worth of deals announced in the three months ended September 27, an increase of 38% year over year and higher than that according to refinitive data every other quarter before.

Net income from institutional securities business, which includes the distribution, trading and investment banking of Morgan Stanley (NYSE: MS), the bank's largest reporting segment, increased 22% year over year to $ 7.5 billion.

Morgan Stanley's investment banking unit, which includes advisory, equity and bond issuance businesses, had revenues of $ 2.85 billion compared to $ 1.71 billion a year ago. That includes a record $ 1.27 billion from advisory business as more deals were closed.

Morgan Stanley ranks third in the global M&A ranking, which ranks financial service providers based on the amount of M&A fees they earn, behind rivals Goldman Sachs Group Inc (NYSE: GS) and JPMorgan Chase & Co. (NYSE: JPM)

Stock issue fees were $ 1.01 billion, with the bank underwriting a number of highly anticipated public debuts including Salesforce (NYSE: CRM) rivals Freshworks Inc, restaurant software maker Toast Inc, and Federer-sponsored rivals Shoe manufacturer On Holding AG.

Morgan Stanley's quarter was further bolstered by a 25 percent increase in wealth management revenues driven by higher assets and net interest income growth driven by the E * Trade acquisition and strong client activity.

The return on equity was 19.6%, well above the two-year target of 14% to 16% that the bank set in January. This metric measures how well a bank uses its capital to generate a profit.

Since Morgan Stanley doesn't have a large consumer credit division, it has been able to handle the economic impact of the COVID-19 pandemic.

The bank reduced its provision for loan losses to $ 24 million in the third quarter, compared to $ 111 million a year earlier.

Net income attributable to common stockholders increased to $ 3.58 billion or $ 1.98 per share for the three months ended September 30, compared to $ 2.6 billion or $ 1.66 per share last year.

According to Refinitiv, analysts had expected earnings of 1.68 dollars per share.

Net income increased to $ 14.75 billion for the third quarter, compared to $ 11.72 billion for the year-ago quarter.

Morgan Stanley stocks, which are up 47% year-to-date, fell 0.5% in line with other US banks.

Gorman said he expected the Federal Reserve to start tapering soon.