Morgan Stanley on Wednesday posted a surprise jump in fixed-income trading for the first quarter, which combined with better-than-expected equities results helped push revenue above $11 billion for the first time.
First-quarter profit, helped by corporate tax cuts, also rose to an all-time high.
The New York investment bank reported a profit of $2.67 billion, or $1.45 per share, compared with a profit of $1.93 billion, or $1 a share, in the same period a year earlier. Analysts expected Morgan Stanley to earn $1.26 per share, according to FactSet.
Total net revenue was $11.1 billion in the quarter, a record, up from $9.7 billion in the same period a year earlier.
Chief Executive Officer James Gorman has overseen a recovery in his firm's bond-trading business even as the industry suffered in recent years from calm markets that cut demand for fixed-income services. Now, rising rates and political uncertainties offer a chance for the unit, led by Sam Kellie-Smith, to boost revenue and catch up to its stock-trading business, which is the world's biggest.
Wealth management is a business that Gorman has been emphasizing for years now, since it tends to be a more steady business than the choppy, market-impacted parts of the bank like trading.
"The beat came from almost every revenue line item, but was largely driven by sales and trading," Chris Kotowski, a bank analyst at Oppenheimer & Co., wrote in a note to clients. He described the bank's results as "firing on all cylinders."
Shares of the company, which gained 1.5 percent this year through Tuesday, rose 2 cents to close Wednesday at $54.65. Mitsubishi UFJ Financial Group Inc., Morgan Stanley's biggest shareholder, said in a separate statement it would sell shares back to the bank to keep its ownership interest below 24.9 percent, the level it agreed to when the alliance began in 2008.
The bank credited securitized products and foreign-exchange for driving the fixed-income trading division's performance.
"Debate around the direction of rates and speed of rates led to more volatility," Chief Financial Officer Jonathan Pruzan said in an interview.
Morgan Stanley experienced "a little bit of a slowdown in the second half of the quarter as some of the dialogue shifted to geopolitical risk and trade wars and the domestic political headlines," Pruzan said. "Seasonality is going to play a part here, so I don't think all these results are sustainable across all of the quarters."
Morgan Stanley used electronic systems to grab the stock-trading business of quantitative hedge funds that have increased assets in recent years. Morgan Stanley President Colm Kelleher said he wants to do the same for bonds.
Investment-banking revenue climbed 7 percent to $1.51 billion, better than the 1.4 percent slump that analysts expected, according to estimates compiled by Bloomberg. The New York-based bank was the No. 1 adviser so far this year on mergers and acquisitions, data compiled by Bloomberg show.
Information for this article was contributed by Ken Sweet of The Associated Press.
Business on 04/19/2018