Morgan Stanley reported a better-than-expected profit yesterday, boosted by a surge in bond trading that helped all Wall Street banks last quarter.
Morgan Stanley’s gains were especially notable.
Its adjusted bond-trading revenue more than doubled, hitting Chief Executive James Gorman’s revenue target for that business for the second quarter in a row.
The bank had struggled for years to improve in bond trading, which has volatile revenue and tough capital requirements to meet. Earlier this year, Morgan Stanley restructured the unit, cutting 25% of staff and appointing new leadership.
In an interview, Chief Financial Officer Jonathan Pruzan said the bank was on the right track, though it might be too soon to claim victory. “The success we’ve had in the last quarter or two has boosted morale and confidence of the team,” he said.”But these things take time and until we can do it for years as opposed to quarters, we’re not going to declare success.”
Though it is still early in the fourth quarter, Pruzan said the trading environment has so far been similar to the end of September.
Overall, Morgan Stanley’s earnings applicable to common shareholders rose 62% to $1.5bn, from $939mn in the same quarter a year earlier. Earnings per share rose to 81 cents from 48 cents, helped by stock buybacks.
Analysts had estimated earnings of 63 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 15% to $8.9bn. Analysts had expected revenue of $8.2bn. Non-interest expenses rose just 4 %, reflecting a cost-cutting program that Morgan Stanley hopes will shave $1bn from annual expenses by next year.
That programme, called Project Streamline, is on track despite costs associated with the bank’s stress test resubmission as well as Brexit, Pruzan said. Morgan Stanley wrapped up a surprisingly strong quarter for big US banks.
Morgan Stanley’s bond-trading revenue rose to $1.5bn in the third quarter from $583mn in the year-ago period, when stripping out accounting gains and losses related to the value of its own bonds.
Despite that rebound, Morgan Stanley posted an 8.7% return on equity, which is less than Gorman’s stated target of 9% to 11% by the end of 2017. Pruzan said he continued to believe that the bank’s target ROE was achievable.
Equities sales and trading revenue, a traditional bright spot for the bank, edged up just 1% to $1.9bn. Revenue from investment banking fell about 7% to $1.23bn, due to weaker M&A fees and capital markets activity.
Morgan Stanley ranked third to Goldman Sachs and JPMorgan Chase & Co in M&A fees collected during the quarter and fourth behind JPMorgan, Bank of America Corp and Goldman in fees from investment banking, which includes equity and debt underwriting, according to Thomson Reuters data.
Revenue from wealth management, which Morgan Stanley has been building for several years, rose 7% to $3.9bn.