Business

Morgan Stanley profit jumps on stock trading

October 19, 2011

File photo shows the entrance to the Morgan Stanley headquarters in New York. Morgan Stanley swung to a quarterly profit as stock trading results proved resilient and wealth management revenue soared. – Reuters picFile photo shows the entrance to the Morgan Stanley headquarters in New York. Morgan Stanley swung to a quarterly profit as stock trading results proved resilient and wealth management revenue soared. – Reuters picNEW YORK, Oct 19 – Morgan Stanley swung to a quarterly profit as stock trading results proved surprisingly resilient and wealth management revenue soared.

The bank benefited from a US$3.4 billion (RM10.56 billion) accounting gain, but its underlying businesses looked strong enough for investors to send its shares up 3 per cent in morning trading.

“Morgan Stanley has proved it can definitely get in there with the heavy hitters,” said Shannon Stemm, financial services analyst for Edward Jones.

The third quarter was tough on Wall Street as the European debt crisis threw markets into turmoil, cut into securities issuance, and slowed down mergers.

But Morgan Stanley managed to post higher stock trading revenue, excluding accounting gains, even as JPMorgan Chase & Co posted a 15 per cent decline.

The European debt crisis weighed heavily on Morgan Stanley’s debt during the quarter as investors fretted about the bank’s exposure to France and other euro zone countries. But the bank said today that its exposure to troubled countries was limited.

“When you look at credit spreads and it’s inconsistent with the strength we’re seeing in our business ... of course it’s frustrating,” Chief Financial Officer Ruth Porat said in an interview.

The weakness in the bank’s debt allowed Morgan Stanley to take the US$3.4 billion accounting gain. Most of its rivals recorded similar gains in the quarter.

Morgan Stanley posted third-quarter earnings of US$2.15 billion, or US$1.15 per share, compared with a loss of 7 cents per share a year earlier. Revenue climbed 46 per cent to US$9.89 billion.

Excluding the DVA gain, it earned 2 cents per share.

The bank’s shares rose 50 cents to US$17.13 in morning trading.

One bright spot in results: The bank’s Morgan Stanley Smith Barney retail brokerage business, a joint venture with Citigroup Inc.

Morgan Stanley’s share of that unit’s income in the third quarter was US$169 million, up from US$144 million a year earlier. The unit’s pre-tax profit margin rose to 11 per cent from 9 per cent. Its long-term goal is 20 per cent.

Morgan Stanley said today that its gross exposure to Greece, Ireland, Italy, Spain and Portugal was US$5.69 billion at Sept. 30, or US$2.1 billion including hedges. The bank’s equity, a measure of its net worth as a company, was about US$60 billion as of June 30.

The bank said its exposure to France at Sept. 30 was US$1.53 billion, or a negative US$286 million including hedges. A report on the financial blog Zero Hedge on Sept. 22 pegged the bank’s exposure to France at US$39 billion at the end of 2010, which sparked fears about losses it might incur.

Revenue from its trading business more than doubled from a year earlier and climbed 24 per cent from the second quarter. The sharp increases reflect the DVA gain.

Asset management revenue of US$215 million fell 73 per cent from the year-ago period and 67 per cent from the second quarter due to paper losses on principal investments in its merchant banking and real estate investing business. – Reuters

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