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Morgan Stanley Claims Another Trading Victory Over Rival Goldman

Image: Morgan Stanley Claims Another Trading Victory Over Rival Goldman
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Wednesday, 19 Jul 2017 09:12 AM

Morgan Stanley beat Wall Street's profit expectations on Wednesday, reporting gains across most of its businesses and producing more trading revenue than rival Goldman Sachs Group Inc., a rare feat.

The sixth-largest U.S. 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 $1.3 billion in revenue from that business topped Chief Executive Officer James Gorman's $1 billion quarterly target and beat Goldman's $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.

Morgan Stanley shares rose 2.8 percent to $46.41 in premarket trading. Through Tuesday's close, Morgan Stanley's shares had risen about 6.8 percent this year, outpacing a 4.2 percent rise in the KBW Bank index.

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 $3.2 billion, due to a small gain in equities trading, where it is has a strong franchise. Goldman's trading revenue was $3.1 billion.

Morgan Stanley's wealth management business logged its best quarter on record. Revenue rose to $4.2 billion, up 9 percent from the year-ago quarter, and its profit margin hit 25 percent, at the high end of Gorman's targeted range.

Morgan Stanley's smallest business, investment management, reported a 14 percent rise in revenue, to $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 $1.6 billion, or 87 cents per share, from $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 $9.5 billion, compared with an average estimate of $9.1 billion. 

© 2017 Thomson/Reuters. All rights reserved.

 
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Morgan Stanley beat Wall Street's profit expectations on Wednesday, reporting gains across most of its businesses and producing more trading revenue than rival Goldman Sachs Group Inc., a rare feat.The sixth-largest U.S. bank by assets reported an 11 percent rise in...
morgan, stanley, goldman, sachs, traders, earnings
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2017-12-19
Wednesday, 19 Jul 2017 09:12 AM
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