Morgan Stanley stunned Wall Street with better-than-expected second-quarter results, outperforming Goldman Sachs and other rivals as it gained market share in tough trading conditions.
The bottom line was helped by strong equity sales and trading, surprisingly resilient fixed income, currency and commodities trading, and a lead underwriting position on several big technology IPOs. Morgan Stanley shares rose 6.3 percent to $23.09 in morning trading.
The bank appears to have won market share from rivals, most notably Goldman Sachs Group Inc, which posted a 53 percent decline in quarterly FICC trading, compared with Morgan Stanley's 10 percent drop.
"We're seeing some progress here on the turnaround in Morgan Stanley's trading business, which has been a long time in the making," said Shannon Stemm, an analyst at Edward Jones. The bank reported a quarterly loss to common shareholders of $558 million, or 38 cents per share, weighed down by a charge for restructuring some of its preferred stock that amounted to $1.02 per share.
The loss was much smaller than analysts expected. The average Wall Street forecast was a loss of 62 cents a share, according to Thomson Reuters I/B/E/S. In the same quarter a year ago, the bank earned $1.91 billion, or $1.09 a share.
The bank's other businesses also showed gains. Morgan Stanley Smith Barney, a joint venture with Citigroup Inc, contributed $180 million of income to Morgan Stanley, a 64 percent increase from a year earlier. Asset management eked out $19 million of income, compared with a loss of $44 million in the same quarter last year.
"Morgan Stanley is the new Goldman Sachs," said Richard Bove, a bank analyst at the brokerage Rochdale Securities. "Every one of their divisions shows an improvement, and the improvement in trading operations is especially impressive."
Chief Executive James Gorman has been on an aggressive campaign to increase market share in FICC trading, trying to woo clients away from competitors and get existing customers to trade more on Morgan Stanley's platform. He reinstalled Ken deRegt as head of FICC trading in January to revitalise the business.