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Finance

Morgan Stanley Profits Jump on a Surge in Bond Trading Revenue

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April 19, 2017, 8:24 AM ET
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Morgan Stanley reported a 74% jump in quarterly profit on Wednesday, topping analysts’ estimates, as revenue from bond trading nearly doubled following interest rate hikes by the Federal Reserve.

The bank’s results stood in sharp contrast to those of chief rival Goldman Sachs (GS), the only lender among the big Wall Street banks to have reported a drop in trading revenue.

Bond trading remained strong across Wall Street during the quarter as investors shuffled their positions around interest rate hikes.

The Fed raised rates twice over a span of three months—once in December and then in March. Elections in Europe and Britain’s progress in leaving the European Union also spurred trading.

Morgan Stanley (MS) hit a key milestone on a profitability metric—return on equity. The bank’s ROE was 10.7% in the quarter, in line with Chief Executive James Gorman’s 9-11% target by the end of 2017.

Morgan Stanley’s shares were up about 2% at $42 in premarket trading on Wednesday.

“We reported one of our strongest quarters in recent years. All our businesses performed well in improved market conditions,” Gorman said in a statement.

Revenue in the bank’s fixed-income trading business rose to $1.7 billion from $873 million in the quarter, the best quarter for the business in two years.

However, revenue from trading in stocks, in which Morgan Stanley has held the top spot among Wall Street banks, fell to $2 billion from $2.1 billion.

Non-interest expenses rose 14.5 percent to $6.9 billion.

Earnings applicable to common shareholders rose to $1.84 billion in the three months ended March 31, from $1.06 billion a year earlier, while earnings per share rose to $1.00 from 55 cents.

Analysts on average had expected a profit of 88 cents per share, according to Thomson Reuters I/B/E/S.

Net revenue jumped 25% to $9.75 billion, beating the average estimate $9.27 billion.

Strong underwriting fees drove revenue from investment banking to $1.55 billion, up about 40%.

Through Tuesday’s close, Morgan Stanley’s shares had risen about 20% since the presidential election in November, compared with an 18% rise in KBW Bank index.

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