World Economy

Morgan Earnings Jump as Trading Rebounds

Morgan Earnings Jump as Trading ReboundsMorgan Earnings Jump as Trading Rebounds

Morgan Stanley (MS) reported earnings that almost doubled, beating analysts’ estimates, on a 9 percent jump in revenue from trading stocks and bonds.

Third-quarter net income climbed to $1.71 billion, or 84 cents a share, from $906 million, or 45 cents, a year earlier, the New York-based bank said Friday in a statement. Excluding an accounting adjustment and a tax benefit, earnings were 65 cents a share, topping the 54-cent average estimate of 23 analysts surveyed by Bloomberg.

Chief Executive Officer James Gorman, 56, has sought to boost returns from fixed-income trading even while shrinking staff and capital alloted to the unit. Revenue from the business in the first nine months climbed 5 percent, breaking a four-year streak of declines for that period.

“July was a good month on the fixed-income side, August was slow, and everything was going to come down to September, and it seems September delivered,” Devin Ryan, a bank analyst at JMP Group Inc. in New York, said before the results were announced. “It was a small window, but that’s encouraging.”

Morgan Stanley rose 4.5 percent to $34 at 7:39 am in New York. The shares climbed 3.7 percent this year through Thursday, outpacing the 0.7 percent gain for the 85-company Standard & Poor’s 500 Financials Index.

 Book Value

Revenue excluding accounting adjustments rose to $8.69 billion from $8.12 billion a year earlier. Book value per share rose to $34.17 from $33.46 at the end of June. Return on equity, a measure of how well it reinvests earnings, was 9 percent, including the tax benefit.

The accounting gain is known as a debt valuation adjustment, or DVA. It stems from decreases in the value of the company’s debt, under the theory it would be less expensive to buy it back. The firm had a $215 million gain from DVA, versus a $171 million charge in the third quarter of 2013.

Revenue from fixed-income sales and trading, run by Michael Heaney and Robert Rooney with commodity trading co-heads Colin Bryce and Simon Greenshields, was $997 million, excluding DVA. That surpassed estimates of $895 million from Matt Burnell at Wells Fargo & Co. and $825 million from Macquarie Group Ltd.’s David Konrad.

Goldman Sachs Group Inc. posted fixed-income revenue of $1.98 billion, and Citigroup Inc. reported $2.98 billion.

In equities trading, headed by Ted Pick, Morgan Stanley’s revenue increased 4 percent from a year earlier to $1.78 billion, excluding DVA. That compared with $1.03 billion at Bank of America Corp. and $1.46 billion at Goldman Sachs. It also topped Konrad’s estimate of $1.6 billion and Burnell’s $1.68 billion.

JPMorgan Chase & Co. (JPM) and Citigroup Inc. posted earnings this week that topped analysts’ estimates on bigger-than-expected increases in fixed-income trading revenue. The firms cited a pickup in volatility and volume in currency and bond markets in September.