Morgan Stanley’s profit doubled in the fourth quarter as trading activity surged across Wall Street, and the bank said it is on track to reach a number of financial goals set out by chief executive James Gorman.
In announcing earnings yesterday, Morgan Stanley detailed huge gains in bond trading, an area where it has long struggled.
The bank also reported stronger revenue in equities trading, where Morgan Stanley is typically a leader, and said it is close to hitting targets for cost-cutting, wealth management profits and returns on shareholder equity.
“There is certainly more reason to be optimistic as we enter 2017 than there was at the beginning of 2016,” Gorman said on a conference call with analysts.
Overall, Morgan Stanley’s profit soared to $1.5bn in the fourth quarter from $753mn a year earlier.
Earnings per share increased to 81 cents from 39 cents, easily beating expectations.
Analysts on average had forecast a profit of 65 cents per share, according to Thomson Reuters I/B/E/S.
Net revenue jumped 17% to $9bn, beating the average estimate $8.5bn.
Bond trading revenue rose to $1.5bn in the quarter from $550mn last year, the second-highest level since the first quarter of 2015 in what is typically a slow period for the business.
The bond trading bump came after a 25% reduction in staff, and helped Morgan Stanley exceed Gorman’s $1bn-per-quarter bond-trading revenue benchmark for the full year.
With interest rates positioned to rise further — which would prompt investors to shift positions again — Morgan Stanley’s results “should not necessarily be seen as a fluke,” Oppenheimer analyst Chris Kotowski said.
However, the bank’s finance chief, Jonathan Pruzan, struck a cautious tone.
Morgan Stanley will not increase its quarterly target for the business until it is clear that recent revenue trends were sustainable, he said.
While bond trading was the main driver of Morgan Stanley’s earnings beat, it is the most volatile business on Wall Street and big swings in revenue are common.
Morgan Stanley said it is on track to hit Gorman’s $1bn annual cost-cutting target, and its 22% wealth profit margin is close to the 23-to-25% range it aims to hit next year.
The bank’s return on equity was 8.7% in the quarter, short of Gorman’s 9-to-11% target by the end of 2017.