Morgan Stanley Profit Rises on Trading Boost
Morgan Stanley said its quarterly earnings rose 57%, beating expectations, as the smallest of the big Wall Street firm benefited from a trading rebound that has helped the country's largest banks.
The New York-based firm reported a profit of $1.6 billion, or 81 cents a share. That compares with the $1.02 billion, or 48 cents a share, it reported in the same period last year. Excluding accounting adjustments, earnings in the year-earlier period were 34 cents a share.
Revenue grew 15% to $8.91 billion from $7.77 billion a year earlier, when sluggish trading activity and losses in its Asia private-equity portfolio caused Morgan Stanley to post one of its worst quarters under Chief Executive and Chairman James Gorman.
Analysts polled by Thomson Reuters had expected Morgan Stanley to earn 63 cents a share on revenue of $8.17 billion.
Shares edged up 0.6% premarket.
The firm's return on equity, a closely watched measure of profitability, was 8.7% in the third quarter, versus 5.6% a year ago. Mr. Gorman has set a goal of 10% by 2017, and the firm has shown unsteady progress toward meeting it.
Morgan Stanley shares have outperformed its biggest peers since midsummer, up 24% since July 1, and are roughly flat on the year.
Last among big banks to report third-quarter earnings, Morgan Stanley faced generally high expectations. Rivals reported strong results in their trading and investment banking businesses, both big divisions at Morgan Stanley.
Morgan Stanley followed suit with sales and trading revenue up 16% to $3.17 billion. The fixed-income division logged a 61% increase, while equities edged up 0.7%.
Trading gains at all the big banks were led by fixed-income, where Morgan Stanley is weakest. Stock-trading, Morgan Stanley's strength, was down sharply at Bank of America Corp. and Citigroup Inc.
Morgan Stanley makes more money in equities than any of its rivals, but has struggled to build a consistently profitable business trading corporate and government debt securities, currencies or commodities.
It recently laid off 25% of its fixed-income traders and set a soft target of $1 billion a quarter in fixed-income revenue, a level it has now exceeded two quarters in a row.
Investment banking revenue, which include merger advisory and underwriting fees, fell slightly to $1.23 billion from $1.31 billion in the third quarter of 2015.
In wealth-management, revenue rose to $3.88 billion from $3.64 billion last year. The unit's profit margin was 23%, up from 22.5% last quarter. Mr. Gorman had set a 22% target.
It is part of his plan, now a few years under way, to move Morgan Stanley away from volatile trading and into more-stable areas like wealth management, whose fees don't swing around as much with the market. The firm has recently taken steps to bolster the division, like offering higher-yielding savings accounts to lure deposits and encouraging its brokers to offer their clients mortgages to boost revenue.
Investment management revenue more than doubled to $552 million. That division, whose chief, Dan Simkowitz, is about a year into the job, is Morgan Stanley's smallest but most profitable, and has grappled with a shift toward passive investing and new regulations affecting money-market funds.
Write to Liz Hoffman at liz.hoffman@wsj.com