Profit Surges at Morgan Stanley
Morgan Stanley said on Thursday that its second-quarter earnings surged, driven largely by growth in the firm’s wealth management operations and by strong performances in investment banking and equity sales.
Excluding certain charges relating to its debt and a big tax benefit, Morgan Stanley posted profit of $1.3 billion, or 60 cents a share, on $8.5 billion in revenue, up 46 percent from the second quarter of 2013. Analysts had expected Morgan Stanley to report earnings of 55 cents a share on revenue of $8.1 billion, according to a survey by Thomson Reuters.
Including certain accounting adjustments and a big tax break, Morgan Stanley’s profit nearly doubled, to $1.9 billion.
Like the rest of Wall Street, Morgan Stanley has since the financial crisis wrestled with a sluggish trading business, once its most lucrative unit. As a result, the bank has looked elsewhere to find more stable sources of revenue. To do that, it has expanded its wealth management unit, which generates a more predictable stream of fees.
That bet has largely paid off. Pretax income at the wealth management unit rose to $767 million in the second quarter from $655 million in the period a year earlier. This year’s results represented a pretax profit margin of 21 percent.
“Our quarterly results demonstrated solid performance, despite a muted operating environment,” James P. Gorman, the bank’s chief executive, said in a statement.
Morgan Stanley’s return on equity, a closely watched yardstick of profitability, also jumped ahead of its main rival, Goldman Sachs, to reach 11.5 percent. On Tuesday, Goldman reported a return on equity of 10.9 percent.
“I think that will be perceived as good news,” said Devin P. Ryan, an analyst with the JMP Group said of Thursday’s results. “I think we saw some similar trends out of Morgan Stanley that we’ve seen out of a number of their big-bank peers.”
While low interest rates and increased regulation have weighed on trading across Wall Street, the big banks had a better quarter than expected. Morgan Stanley reported that fixed-income and commodities trading revenue fell slightly, to $1 billion from $1.2 billion in the period a year earlier. That decline was less steep than analysts had feared, largely mirroring results at Goldman Sachs.
On Wednesday, Bank of America surprised analysts by reporting that revenue in its fixed income, currencies and commodities unit had increased 5 percent from the second quarter of 2013.
Shares of Morgan Stanley were up nearly 3 percent in premarket trading.
“I think the market had feared a more substantial decline for Morgan and the rest of the industry,” Mr. Ryan said.
Investment banking, which benefited from a more favorable equity market, helped significantly increase the bank’s profit. Equity underwriting rose to $489 million from $327 million in the period a year earlier, while work on a number of big transactions also helped push advisory revenue up to $418 million from $333 million in the second quarter of 2013.
Source: NYT
