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 Morgan Stanley's shares rose 4 percent to $33.85 in premarket
trading as both profit and revenue handily beat market expectations.
The bank has been reducing its exposure to the volatile trading
business and its increasingly burdensome regulations, and has been
concentrating instead on wealth management as a way to achieve a
more stable source of revenue.
But it was a surge in revenue from bond trading and fees for
underwriting IPOs and advising on takeovers that were mainly
responsible for the surge in earnings in the latest quarter.
Bond trading revenue, excluding accounting adjustments, rose 19.4
percent to $997 million after a sudden increase in market volatility
last month that also boosted its Wall Street rivals.
Equity underwriting almost doubled to $464 million, helped by a
booming market for initial public offerings. Morgan Stanley was
among the banks involved in Alibaba Group Holding Ltd's $25
billion IPO - the biggest in history.
Overall institutional securities revenue, which includes trading and
investment banking, rose 22 percent to $4.52 billion.
Wealth management revenue rose 9 percent to $3.79 billion, but
accounted for 42.5 percent of Morgan Stanley's total revenue,
compared with 50.7 percent for the bank's traditional trading and
investment banking business.
BONDS COME TO LIFE
After a long period of sluggish activity, the bond market was jolted
to life in September by upbeat U.S. economic data, stimulus steps
taken in Europe, and the shock exit of trading superstar Bill Gross
from bond trading giant Pimco.
But the growth achieved by Morgan Stanley paled against that of
close rival Goldman Sachs Group Inc <GS.N>. Excluding accounting
adjustments, Goldman reported a 53 percent jump in revenue from
trading bonds, currencies and commodities.
Like several other big banks, Morgan Stanley has been shrinking its
bond trading business, giving Goldman an opportunity to take market
share.
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"We are well positioned to create superior returns for our
shareholders, particularly as the U.S. economy continues to
strengthen," Chief Executive and Chairman James Gorman said in a
statement.
Total revenue rose 12 percent to $8.91 billion.
Net income attributable to common shareholders rose to $1.65
billion, or 84 cents per share, Morgan Stanley said.
On an adjusted basis, the bank earned 65 cents per share, according
to calculations by Thomson Reuters I/B/E/S. On this basis, analysts
had expected earnings of 54 cents per share.
Morgan Stanley's wealth-management business achieved a pretax profit
margin of 22 percent, above the 20 percent that Chief Executive
James Gorman has set as a minimum target and the 21 percent reported
for the second quarter.
Still, the bank's adjusted return-on-equity was 9 percent in the
quarter, below both the 10 percent minimum Gorman is trying to
achieve and the 10.7 percent return in the second quarter.
(Reporting by Tanya Agrawal and Lauren Tara LaCapra; Editing by Ted
Kerr)
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