Morgan Stanley Reports Higher Earnings Than Expected on Heels of Solid Bond Trading

bond-tradingMorgan Stanley has reported profits better than expected, on Wednesday, boosted by a jump in bond trading that actually helped the whole of Wall Street banks just last quarter. Their gains are particularly notable because its adjusted bond-trading revenue increased more than twofold, which pretty much hit Chief Executive James Gorman’s revenue target right on the head—and for the second straight quarter.

Now, the bank has been struggling for the past few years to improve its bond trading results as this revenue can be volatile with its tough capital requirements. In fact, just a few months ago, Morgan Stanley restructured its bond unit, result in a cut of 25 percent of its staff and in the appointment of new leadership.

Specifically, the bank’s bond-trading revenue improve to $1.5 billion in Q3, from $583 million in the same period a year ago. This was a time when stripping out accounting gains and losses were related to its bond values.
“We obviously did much better than probably anybody felt this quarter…” Gorman explains. “But we did not and are not going to run any victory lap around fixed income.”
In addition, stock trading revenue increased, slightly: from $1.8 billion to $1.9 billion. Accordingly, Morgan Stanley’s wealth management arm posted revenue of $3.9 billion, up from $3.6 billion. In addition, Morgan Stanley’s assets under management improved from $13.5 billion, this quarter. The bank has been working on developing this particular arm—known at one time as Morgan Stanley Smith Barney—to be a more stable earnings driver over trading, a measure that vary with the ebb and flow of market volatility.

Gorman continues, “Overall the results reflect steady progress against our long term strategic goals.”

Analysts say that the improving trading results are most likely driven by more fixed income trading. Investors had been more apt for risk in regards to whether or not the Federal Reserve would raise interest rates; also as investors adjust their portfolios to accommodate the recent departing of Britain from the European Union.

As such, JP Morgan chief financial officer, Marianne Lake, notes, “We were firing on all cylinders. Clients were motivated to act.”

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