MORGAN Stanley beat Wall Street's profit expectations yesterday, reporting gains across most of its businesses and producing more trading revenue than rival Goldman Sachs Group Inc, a rare feat.
The sixth-largest US bank by assets reported an 11 percent rise in second-quarter profit, with higher revenue from giving corporations advice, underwriting securities, trading equities and managing customers’ wealth.
The one dark spot, bond trading, fell 4 percent, much less than at Wall Street rivals that reported earnings in recent days. The US$1.3 billion in revenue from that business topped Chief Executive Officer James Gorman's US$1 billion quarterly target and beat Goldman’s US$1.16 billion.
“We think we've made the right decisions and the results over the last five quarters in a row show we’re credible and critically sized” in bond trading, Chief Financial Officer Jonathan Pruzan said in an interview.
For years, Morgan Stanley struggled to convince Wall Street that its plan to remain a major player in trading while growing wealth management was going to succeed. Its results were choppy following the 2007-2009 financial crisis, and it took time for pieces of Gorman's plan to fall into place.
But lately the bank has been hitting or exceeding the targets Gorman laid out.
It was the fifth quarter in which Morgan Stanley hit Gorman's bond trading revenue target and the second straight quarter that it surpassed Goldman's trading revenue.
Morgan Stanley’s 4 percent revenue dip in that business compares with a 40 percent drop at Goldman and declines of 6 percent to 19 percent at Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co.
Overall, Morgan Stanley’s trading revenue fell a more modest 2 percent, to US$3.2 billion, due to a small gain in equities trading, where it is has a strong franchise. Goldman’s trading revenue was US$3.1 billion.
Morgan Stanley’s wealth management business logged its best quarter on record. Revenue rose to US$4.2 billion, up 9 percent from the year-ago quarter, and its profit margin hit 25 percent, at the high end of Gordman’s targeted range.
Morgan Stanley’s smallest business, investment management, reported a 14 percent rise in revenue, to US$665 million.
The bank’s 9.1 percent return on equity, a measure of profitability, was within the 9 percent to 11 percent target Gorman set out to hit by the end of 2017. It was higher than Goldman's 8.7 percent return during the same period.
The two banks are fierce rivals in many businesses, but it has been rare for Morgan Stanley to beat Goldman in trading or be broadly more profitable.
“Love it when a plan comes together,” Evercore ISI analyst Glenn Schorr wrote in a note to clients, referring to strength across all of Morgan Stanley's businesses.
Overall, Morgan Stanley’s second-quarter profit rose to US$1.6 billion, or 87 cents per share, from US$1.4 billion, or 75 cents per share, in the same period last year.
Analysts had expected earnings of 76 cents per share, on average, according to Thomson Reuters I/B/E/S.
Its revenue rose 7 percent to US$9.5 billion, against an average estimate of US$9.1 billion.