Fed Cuts Rate: Will This Accelerate Morgan Stanley's IB Fee Growth?

The Federal Reserve has implemented its third consecutive 25-basis-point rate cut this year, reigniting investor optimism. The move is expected to support the ongoing strong resurgence in deal-making activity, potentially boosting investment banking (IB) fees for Morgan Stanley MS.

This year began on an optimistic note, but market sentiment cooled after Trump’s tariff policies launched on “Liberation Day,” casting a shadow over deal-making. Yet, the momentum has rebounded, as deal-making activity has started picking up.
 
Riding a wave of deal-making and initial public offering activity, MS’ IB revenues reached $5.2 billion in the first nine months of 2025, up 15% year over year. On the third-quarter 2025 call, Morgan Stanley CEO Ted Pick said the improving environment supported strategic mergers & acquisitions (M&As) and renewed financing activity. While being cautious, remarking that “whether we are entering a golden age of investment banking remains to be seen”, he noted that IB activity should continue to rise over the next couple of years.

The Fed’s latest rate cut is likely to further accelerate this momentum by lowering financing costs and prompting companies to revive delayed M&A and capital-raising plans. Cheaper capital, along with resilient economic growth, typically boosts deal pipelines and IPO readiness. This improved backdrop positions Morgan Stanley for stronger near-term IB activity.

Thus, a healthy IB pipeline, an active M&A market and Morgan Stanley’s strong franchise position it to capitalize on the improving macro backdrop. However, with the Fed signaling a pause in further rate cuts, the benefits may be frontloaded rather than sustained, limiting the impact largely to the near term.

Benefits for Morgan Stanley’s Peers

Similar to Morgan Stanley, other major IB firms like JPMorgan JPM and Goldman Sachs GS will likely benefit from this macro tailwind, given lower borrowing costs.

During the first nine months of 2025, JPMorgan’s IB fees rose to $7.3 billion, implying 12.3% year-over-year growth, driven by improvements in advisory and underwriting businesses. Jeremy Barnum, executive VP and chief financial officer of JPMorgan, noted healthy deal flow with robust pipelines, supported by a constructive market environment.

Driven by higher advisory revenues, signifying a substantial rise in M&A volumes, Goldman’s IB fee revenues totaled $6.8 billion during the first nine months of 2025, up 19.1% on a year-over-year basis. David Solomon, chairman and CEO of Goldman, highlighted improvements in M&A throughout the year and expects the constructive environment to continue through the end of 2025, with even stronger M&A activity anticipated in 2026 amid a favorable backdrop.

Morgan Stanley’s Zacks Rank & Price Performance

This year, Morgan Stanley’s shares have gained 43.4%, compared with the industry’s 35.4% growth.

Currently, Morgan Stanley sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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