By Liz Hoffman 

Morgan Stanley's third-quarter profit rose 3% from a year ago, the last major U.S. bank to skate through a period of global tensions and shifting markets.

The bank on Thursday reported a profit of $2.17 billion, or $1.27 a share, on $10.03 billion in revenue, well above what analysts had expected. Shares rose 4% in trading before the market opened.

Analysts polled by FactSet had expected a profit of $1.83 billion, or $1.11 a share, on $9.59 billion in revenue. Morgan Stanley picked up about 6 cents a share in earnings thanks to a tax benefit; pretax profits were 5% lower than a year ago.

"Overall we remain cautious today, as trade talks swirl and interest rate paths continue to be debated," Chief Executive James Gorman said. "But expect us to look beyond the next few months."

Morgan Stanley is the last of the big U.S. banks to report earnings for the third quarter, a stretch in which two Federal Reserve interest-rate cuts and growing global tensions upended the relative calm and easy financial policies that have helped banks thrive in recent years.

The results were mixed: Profits rose at JPMorgan Chase & Co. and Citigroup Inc., driven by strong consumer-banking businesses. Goldman Sachs Group Inc., Bank of America Corp. and Wells Fargo & Co. posted lower profits, though the drops at the latter two owed largely to one-time charges.

Morgan Stanley's return on equity, a measure of profitability, was 10.7% for the quarter, accounting for the tax benefit, versus a range of 9% to 15% at peers that have already reported.

Mr. Gorman, in the job since 2010, has transformed Morgan Stanley from Wall Street's problem child into one of its steadier performers. He cut costs, shrank the firm's trading division, and doubled down on wealth management, a steadier business that now accounts for nearly half of Morgan Stanley's revenue and ties up little of its capital.

Post-turnaround, Mr. Gorman has sounded more acquisitive in recent months but must contend with skeptical investors. Morgan Stanley's shares are among the worst-performing among the biggest U.S. banks this year, up 7% versus a 15% rise in the KBW Nasdaq Bank Index.

On Thursday, he continued a long-running gripe with regulators: that they haven't given Morgan Stanley credit for its turnaround. "One ongoing challenge of our continued pursuit of higher [returns] has been the amount of equity we're required to hold," he said.

Morgan Stanley's wealth-management division reported $4.36 billion in revenue from the $2.6 trillion it manages. Its nearly 16,000 brokers have pivoted from plugging stocks earning trading commissions to charging a flat fee to advise people on where to invest their money.

It also has benefited from a decadelong bull market, which pushed up the value of clients' portfolios and the fees the bank can collect for managing them. The division is getting more efficient: Its pretax profit was up 4% on revenue that was essentially unchanged.

Revenue from investment banking rose 5% from a year ago as a funk settled over what had been a red-hot run for stock offerings. Equity underwriting fees fell 9%, with Chief Financial Officer Jonathan Pruzan citing a "notable decline" in IPOs, and were offset by a rise in revenue from mergers and debt placements.

The firm's trading revenue rose 10%, in line with peers including Goldman Sachs and Bank of America. Fixed-income trading, which includes debt, commodities and currencies, rose 21%, while stock trading, a key business for Morgan Stanley, was roughly flat.

The firm's smallest division, money management, reported revenue of $764 million, up 17% from a year ago. Assets ticked up 2% from the end of June, to $507 billion, as an influx of short-term money-market assets balanced out lower stock market prices. Growing that division is a priority for Mr. Gorman.

Write to Liz Hoffman at liz.hoffman@wsj.com

 

(END) Dow Jones Newswires

October 17, 2019 09:07 ET (13:07 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From Apr 2020 to May 2020 Click Here for more Morgan Stanley Charts.
Morgan Stanley (NYSE:MS)
Historical Stock Chart
From May 2019 to May 2020 Click Here for more Morgan Stanley Charts.