NEW YORK — Morgan Stanley said Wednesday that its second-quarter net income rose to $1.58 billion, easily topping forecasts as its Smith Barney brokerage helped the bank recover from a loss a year ago.
Morgan Stanley joined US Bancorp and Wells Fargo in reporting that trading revenue fell from the first quarter, the result of the stock market’s spring plunge. But Morgan Stanley, which was hurt a year ago by a conservative trading strategy and steep losses on real estate investments, was able to beat analysts’ overall revenue and profit expectations for this latest quarter.
Morgan Stanley’s net income after payment of preferred stock dividends rose to $1.09 per share from a loss of $1.10 per share a year earlier, when it lost $1.26 billion.
Earnings from continuing operations, which excludes special charges, were 80 cents per share. Revenue jumped 53 percent to $7.95 billion.
Analysts polled by Thomson Reuters forecast earnings of 46 cents per share on revenue of $7.93 billion.
The company’s stock rose $1.58, or 6.3 percent, to close at $26.80.
Morgan Stanley’s results came a day after competitor Goldman Sachs Group Inc.
re-ported an 83 percent drop in profits as trading revenue fell sharply.
The impact of the volatile stock market was less at Morgan Stanley. It saw trading revenue, or money made on buying and selling stocks and other securities, fall 11 percent to $3.35 billion from the first quarter. Trading revenue nearly doubled from the second quarter last year.
Morgan Stanley also draws a large portion of its revenue from its retail brokerage business, unlike Goldman, which relies on institutional clients for its business. The brokerage unit, Morgan Stanley Smith Barney, generated $3.07 billion in revenue during the second quarter, compared with $1.92 billion during the year-ago period. Morgan Stanley acquired a majority stake in Smith Barney from Citigroup Inc. during the middle of the second quarter last year, so year-ago results don’t include a full quarter of business.
US Bancorp’s second-quarter profit nearly quadrupled and its CEO said the amount of bad loans should shrink in the next quarter, as defaults by consumers and businesses level off.
Several measures of the bank’s credit quality improved compared with the first quarter, although they were worse than a year earlier.
Richard K. Davis, US Bancorp’s chairman and chief executive officer, said credit quality measures have reached an “inflection point” and should generally stop getting worse. Loans on which people have stopped making payments, and loans written off by the bank, should both decrease in the current quarter, he said during a conference call.
US Bancorp set aside $317 million for credit-card losses in the quarter, $5 million more than in the first quarter. “Losses on the credit-card portfolio are expected to stabilize, but remain higher than historical levels as long as unemployment remains high,” Davis said.
US Bancorp charged off $1.11 billion in bad loans during the second quarter. That was 20 percent more than the same period last year, but down slightly from the first quarter. It reported $3.73 billion in nonperforming assets, up 12 percent from the same period last year, but down from almost$4 billion in the first quarter.
The bank’s profit surged to $862 million, or 45 cents per share, including a gain of 5 cents per share linked to preferred dividends. A year earlier it earned $221 million, or 12 cents per share. Revenue rose almost 9 percent to $4.52 billion on strong growth in interest income and fee revenue.
Shares of US Bancorp fell 8 cents to close at $23.07.
Better payment rates for mortgages, auto loans and credit cards helped lift Wells Fargo & Co.’s second-quarter profit by 12 percent.
Wells Fargo, which depends more on consumer banking and doesn’t have the large investment-banking arm of the other big banks, also reported growth in deposits and new accounts, and an uptick in new lending.
“It is early yet to call these sustainable trends, but it is real progress and it is in the right direction,” Chairman and CEO John Stumpf said in a conference call to discuss the results.
Wells Fargo posted net income applicable to common shareholders of $2.88 billion, up from $2.58 billion last year. Before the payment of preferred dividends, net income fell 3 percent to $3.06 billion.
On a per-share basis, profit was 55 cents per share, compared with 57 cents per share last year. That reflects a 17 percent increase in the number of outstanding shares.
Shares of Wells Fargo gained 15 cents to close at $26.06, after earlier changing hands as high as $27.60.
Information for this article was contributed by Stephen Bernard, Joshua Freed and Eileen AJ Connelly of The Associated Press.
Business, Pages 25 on 07/22/2010