Morgan Stanley bond trading unexpectedly strong

Thu Apr 19, 2012 2:43pm EDT
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By Lauren Tara LaCapra

(Reuters) - Morgan Stanley (MS.N: Quote) won market share in bond trading in the first quarter after years of investments in the business, allowing the Wall Street bank to post results that beat many analysts' expectations.

The investment bank and brokerage said its bond trading revenue rose compared with last year's first quarter, stripping out an accounting quirk, even as its chief rival, Goldman Sachs Group Inc (GS.N: Quote), posted a decline. Morgan Stanley shares were up 1 percent at $17.85 in Thursday afternoon trading.

"We had identified several years ago that we were punching below our weight in fixed income products," Chief Financial Officer Ruth Porat said in an interview. "I think you're beginning to see the fruits of all we've done here."

Morgan Stanley also showed some progress in its wealth management business.

In spite of those gains, the bank lost money during the first quarter because an accounting adjustment cost it $2 billion. Analysts typically exclude that item, known as debt valuation adjustment (DVA), from their performance assessments.

The bank reported a net loss of $119 million, or 6 cents per share, compared with a profit of $736 million, or 50 cents per share, a year earlier.

Excluding the debt adjustment, which requires companies to record gains when their own debt weakens and losses when their debt strengthens, Morgan Stanley earned $1.4 billion, or 71 cents per share.

The bank's trading revenue was much higher in the first quarter than the 2011 fourth quarter, thanks in large part to improvements in the fixed-income markets. U.S. competitors including Goldman, JPMorgan Chase & Co (JPM.N: Quote), Citigroup Inc (C.N: Quote) and Bank of America Corp (BAC.N: Quote) also posted gains.   Continued...

The outside of the Morgan Stanley offices is seen in New York January 18, 2012. REUTERS/Shannon Stapleton