Morgan Stanley reported profit that beat analysts' estimates as a surprise jump in fixed-income results helped the firm post the only increase in trading revenue among the six biggest U.S. banks this year. The stock rose 3% in early New York trading.
First-quarter net income advanced 56% to $1.51 billion, or 74 cents a share, from $962 million, or 48 cents, a year earlier, the New York-based company said today in a statement. Excluding an accounting gain tied to the firm's own debt, profit from continuing operations was 68 cents a share, topping the 60-cent average estimate of 26 analysts surveyed by Bloomberg.
A five-quarter rally in U.S. stocks has helped Chief Executive Officer James Gorman boost revenue from wealth management and gain market share in equities trading. The firm also saw a 9% increase in fixed-income trading revenue to a two-year high while its peers posted declines.
"Rates and foreign-exchange are bigger businesses for the big banks, while commodities, which had a little bit better quarter off a depressed base, and credit, which was more resilient, are bigger drivers for the bulge-bracket firms," Devin Ryan, an analyst at JMP Group Inc., said before the results were announced.
Morgan Stanley rose 1.2% to $29.89 yesterday in New York. The shares dropped 4.7% this year through yesterday, after climbing 64% in 2013 and 26% the year before.
Revenue Rise
Revenue excluding accounting adjustments rose 3.5% to $8.8 billion from $8.5 billion a year earlier, the firm said. Book value per share increased less than 1% during the quarter to $32.38. The firm's adjusted return on equity, a measure of how well it reinvests earnings, was 8.5%.
The accounting gain is known as a debt-valuation adjustment, or DVA. It stems from decreases in the value of the company's debt, under the theory it would be less expensive to buy it back. The adjustment added $126 million to revenue in the first quarter, versus a $317 million charge a year earlier.
"We generated higher year-over-year revenues in all three of our business segments, demonstrating the momentum we have built across the firm," Gorman said in the statement.
Morgan Stanley's first-quarter revenue from fixed-income sales and trading, run by Michael Heaney and Robert Rooney with commodity trading co-heads Colin Bryce and Simon Greenshields, was $1.65 billion, excluding DVA. That compared with estimates of $1.25 billion from JPMorgan Chase & Co.'s Kian Abouhossein and $1.32 billion from Sanford C. Bernstein & Co.'s Brad Hintz.
Fixed Income
Fixed-income revenue rose 9% from $1.52 billion in the year-earlier quarter. This year's figure compared with $2.95 billion at Bank of America Corp. and $3.85 billion at Citigroup Inc.
In equities trading, headed by Ted Pick, Morgan Stanley's revenue climbed 7% from a year earlier to $1.71 billion, excluding DVA. That compared with $1.15 billion at Bank of America and $1.3 billion at JPMorgan. Abouhossein had estimated equities revenue of about $1.45 billion, while Hintz estimated $1.61 billion.
