Morgan Stanley posted a higher-than-expected quarterly profit on Friday as stock trading revenue jumped 31 percent, surprisingly strong performance in a quarter when rivals posted smaller gains or even declines in that business.
Its rise in stock trading revenue helped offset the decline in fixed-income, currency and commodity trading, where revenue fell 44 percent.
Morgan Stanley reshaped itself after nearly failing during the financial crisis, focusing more on businesses that offer relatively stable earnings, like wealth management, and dialing down risk-taking in fixed income, where it suffered big losses.
That strategy has been at times painful for the bank, as it missed out on a big profit that rivals earned from bond trading, for example.
However, in the third quarter, its decisions resulted in unexpectedly high profit.
“If you had questions about the business plan going forward, they were answered this quarter,” Hagin Investment Management managing director Patrick Morris said.
In recent years, Morgan Stanley has invested heavily in equity trading, hiring specialty sales staff to help institutional clients pick stocks and formulate complex trades.
After those investments, the bank’s equity trading revenue rose globally in the third quarter in stocks, derivatives and trading and financing positions for hedge funds, a business known as “prime brokerage,” a spokesman said.
Morgan Stanley grew faster than many rivals in equities trading and reported more revenue from the business than any other big Wall Street bank.
“It was another strong quarter across products and geographies, and I’ve said that a number of quarters in a row,” chief financial officer Ruth Porat told analysts on a conference call.
She added that results were “notable” because the third quarter is typically slow, and industry volumes were down.
Although equity trading posted surprisingly large gains last quarter, wealth management has been the real centerpiece of chief executive James Gorman’s strategy to stabilize earnings.
Morgan Stanley completed its purchase of the Smith Barney brokerage from Citigroup Inc in the second quarter, effectively doubling the size of the business since Gorman joined the bank in 2006.
The combined franchise — now called Morgan Stanley Wealth Management — showed progress in the third quarter, with income more than doubling and the profit margin approaching Gorman’s minimum goal of 20 percent.
Overall, Morgan Stanley posted third-quarter net income of US$888 million, compared with a loss of US$1.01 billion in last year’s third quarter.
On a per-share basis after preferred stock dividends, the bank earned US$0.44 from continuing operations, compared with a loss of US$0.55 in the same quarter last year.
The year-earlier figures included a charge of US$2.3 billion to reflect a rise in the value of Morgan Stanley’s debt.
Overall revenue rose to US$7.93 billion from US$5.28 billion, driven by equities trading and the wealth management business.
Morgan Stanley shares closed 2.6 percent higher at US$29.69 on the New York Stock Exchange on Friday.