Morgan Stanley (NYSE:MS) posted strong third quarter earnings of $561 million that beat analysts’ estimates, as revenue from fixed-income trading climbed from a year earlier. Per share earnings of 28 cents were 4 cents ahead of analysts’ expectations, according to a survey by Thomson Reuters
However, the earnings from the top global equity underwriter this year, before adjustments, which include a one-time charge related to its credit spreads, turned this profit into a large loss of $1.01 billion, or 55 cents a share compared with a profit of $2.2 billion, or $1.15, a year earlier. The company reported adjusted revenue of $7.6 billion, or $5.3 billion when the one-time charge is taken out.
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“The rebound in fixed income and commodities sales and trading indicates that clients have re-engaged after the uncertainty of the rating review in the previous quarter,” James P. Gorman, the firm’s chief executive, said in a statement. “We are beginning to unlock the full potential of the global wealth management franchise, having increased our ownership of, and agreed on a purchase price for the rest of, Morgan Stanley (NYSE:MS) Wealth Management”.
Chief Executive Officer James Gorman has been trying to improve the returns at the brokerage unit and scale back the fixed- income trading division to reduce capital demands. The company also plans to cut risk-weighted assets within fixed-income and commodities from $320 billion on June 30, to $255 billion by the end of 2014.
“We saw an elevation of the fixed-income trading environment in the results of Goldman Sachs and other banks,” Douglas Ciocca, CEO of Kavar Capital Partners LLC in Leawood, Kansas, which manages about $250 million in assets, said before earnings were released. “Morgan Stanley could be in a good position to grab a piece of that”.
Since the financial crisis, it has been a bumpy ride for Morgan Stanley. Margins have been squeezed, due to the regulatory requirement, asking to lower the amount of borrowed money used to finance operations and use more capital against risky businesses. This requirement, coupled with its past missteps and its relative size, have encouraged rating agencies to lower their stance on the company. This increased its borrowing costs and led the bank to scale back in certain areas, thus reducing profits.
The New York based firm’s shares jumped 3.5 percent yesterday to $18.49. This year, up till now, shares have gained 22 percent, while in 2011 shares were down 44 percent, the biggest decline since 2008.
As per the data compiled by Bloomberg, Morgan Stanley (NYSE:MS) was the second-ranked equity underwriter in the quarter, and also the second-ranked adviser on global announced mergers and acquisitions, and the fifth-ranked underwriter of U.S. bonds.