By Saabira Chaudhuri
Morgan Stanley said first-quarter profit jumped 56% after the
Wall Street firm posted higher revenue in each of its major
businesses, including surprisingly good results from its
fixed-income trading arm.
The results beat analysts' estimates solidly, lifting the firm's
shares by 3.1% in recent premarket trading.
Morgan Stanley's first-quarter net income rose to $1.51 billion
from $962 million. On a per-share basis, which reflects the payment
of preferred dividends, the firm earned 74 cents, or 68 cents
excluding accounting adjustments. Analysts polled by Thomson
Reuters had expected adjusted earnings of 59 cents a share.
Revenue rose 10% to $8.93 billion. Before accounting
adjustments, revenue increased 4% to $8.8 billion, besting
analysts' average estimate of $8.52 billion.
The latest results follow a strong year for the investment bank,
in which Chief Executive James Gorman gained momentum that had
eluded him since taking over the corner office from former chief
John Mack in 2010. Morgan Stanley finished 2013 with four straight
quarters of profits, a first for the Gorman era.
Return on equity, a closely watched measure of profitability,
rose above 8% during the quarter, bringing Morgan Stanley a step
closer to its oft-repeated goal of double-digit returns.
"Very good results, with each business doing well," analysts
from ISI Group wrote in a note to clients. "It still adds up to an
8.3% ROE, but the progress is clear."
Analysts had predicted Morgan Stanley would report another
quarter of improving results from its wealth-management arm, which
expanded last year when the investment bank bought out the
remaining stake of a joint venture with Citigroup Inc.
Thursday, Morgan Stanley reported its wealth management revenue
rose 4.4% from a year earlier, although it slipped 2.9% from the
prior quarter to $3.62 billion.
The unit's pretax profit margin climbed to 19% in the first
quarter. That figure stood at 17% a year ago. Mr. Gorman in January
raised the target pretax profit margin to 22%-25% by the end of
next year.
Morgan Stanley's institutional-securities business, which
includes investment banking and trading results, reported adjusted
revenue of $4.48 billion, versus $4.4 billion a year earlier and
$3.69 billion in the prior quarter.
Morgan Stanley's trading performance was unexpectedly
strong.
Many analysts had predicted quarterly revenue across Wall Street
would drop by double digits, especially in fixed-income trading, in
a quarter marked by timid trading. The firm instead reported higher
fixed-income and commodities trading, bucking the trend set in the
past week by some of its biggest rivals.
The securities firm posted adjusted revenue, excluding the
effects of its own debt on those result, of $1.7 billion, up from
$1.5 billion a year earlier. The unusually cold winter had lifted
commodity prices and spurred more trading activity, helping Morgan
Stanley's results.
"We did have a particular strength in commodities given the
volatility in the market with the weather," Ruth Porat, Morgan
Stanley's finance chief, told The Wall Street Journal. "We also had
strength in corporate credit and mortgage.
"Commodities tend to perform better in extreme weather. But we
also saw a pickup in client activity."
Equity trading revenue totaled $1.7 billion, up from $1.6
billion. Morgan Stanley cited strong gains in prime brokerage,
which serves hedge funds.
The firm's investment bankers helped generate advisory revenue
of $336 million, up from $251 million a year-ago, although down
from the $451 million reported in the fourth quarter. In a recent
research note, analysts at Credit Suisse said although completed
advisory activity during the first quarter was seasonally softer,
"the pace of announcements picked up modestly and bodes well for
future revenue."
Meanwhile, debt underwriting revenue came in at $485 million
from $411 million and equity underwriting revenue was up at $315
million from $283 million a year earlier.
During the quarter, Morgan Stanley again logged higher
compensation and benefits expenses. Overall, noninterest expense
was $6.62 billion, up 0.8% from the year earlier but down 18% from
the fourth quarter when Morgan Stanley reported a $1.2 billion
pretax legal expense.
The firm's employee count edged up 1.1% to 55,883 from a year
earlier, but was roughly flat from the prior quarter.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Justin Baer at justin.baer@wsj.com
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