Morgan Stanley profit races past estimates as trading shines

Morgan Stanley's profits surged in the fourth quarter, blowing past estimates as the Wall Street bank's trading business benefited from coronavirus-induced volatility in financial markets.

The Wall Street investment bank on Wednesday also confirmed plans to buy back $10 billion of shares this year, more than three times the figures announced by its retail banking peers, as it wrapped up results for US lenders, which pointed to a modest rebound in the economy.

While profits from JPMorgan, Bank of America and Wells Fargo have all suffered from the fallout of the crisis for Main Street, Wall Street's big investment banks have had to make only minimal allowance for a coming wave of mortgage and consumer loan defaults.

High trading volumes during the quarter, stemming from the US elections and the release of coronavirus vaccines, benefited Morgan Stanley's trading unit, which is housed within the institutional securities business.

The bank's revenue from sales and trading rose to $4.22 billion from $3.19 billion.

Net revenue rose to $13.64 billion in the quarter, from $10.86 billion last year, while revenue from the company's investment banking division rose to $2.30 billion from $1.58 billion.

Chief Executive Officer James Gorman has, however, been taking steps to insulate the bank from its reliance on trading, and engineered two large back-to-back acquisitions, those of Eaton Vance and E*Trade, to bolster its investment management and broking arms.

Morgan Stanley's equity underwriting revenue soared 81% from a year earlier, driven by high profile IPOs and follow-on offerings as clients continued to access capital markets.

Morgan Stanley was among underwriters for IPOs of companies including Airbnb Inc, gaming firm Playtika Holding Corp , fintech startup Affirm Holdings Inc and cloud-based data warehouse firm Snowflake Inc.

The bank's shares, which rose about 34% in 2020, were up 1.75% in premarket trade.

" ... as we have been saying with the other investment banks that have reported, the environment is clearly exceptional, and we are not counting on it to persist in our forward estimates. Nevertheless, there is nothing not to like in these results," Oppenheimer analyst Chris Kotowski said in a note.

Morgan Stanley's most comparable rival, Goldman Sachs Group Inc, on Tuesday posted a blockbuster fourth-quarter profit that dwarfed Wall Street estimates, but executives warned that capital markets activity fueling results lately will probably slow down.

Morgan Stanley's return on tangible equity, a measure of how well a bank uses shareholder money to produce profits, came in at 17.7%, compared with 13.0% last year and 15.0% in the third quarter.

The bank reported net income applicable to common shareholders of $3.27 billion, or $1.81 per share, in the quarter ended Dec. 31, compared with $2.09 billion, or $1.30 per share, a year earlier.

Analysts had expected a profit of $1.27 per share, according to Refinitiv IBES data.