Morgan Stanley quarterly profit jumps on stock trading

Thu Jul 18, 2013 12:05pm EDT
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By Lauren Tara LaCapra

(Reuters) - Morgan Stanley (MS.N: Quote) posted a 42 percent increase in quarterly profit on Thursday as stock trading revenue soared, the latest sign that the No. 2 U.S. investment bank is regaining its footing.

Income rose in all the bank's businesses. Profit from trading and investment banking was nearly six times higher than a year earlier, helped by stronger stock and bond trading, and profit for Morgan Stanley in wealth management jumped 83 percent.

The bank said regulators approved its buying back $500 million of its stock, and Morgan Stanley shares rose 5 percent in midday trading. The buybacks would represent the first time the bank has repurchased shares since the 2008 financial crisis.

Chief Executive James Gorman has been trying to fix Morgan Stanley, which suffered big losses during the crisis. He has been focusing on measures such as improving profitability in the bond trading business and the wealth management unit, which until June was a joint venture with Citigroup Inc (C.N: Quote).

"They've been talking about some of these plans for a long time but weren't reaching the targets ... But now, they're finally showing progress," said Shannon Stemm, an analyst with Edward Jones who covers Morgan Stanley.

But Gorman still has work to do. Morgan Stanley's return on equity, a measure of how effectively the bank wrings profit from shareholders' money, was just 5.2 percent in the latest quarter. That is up from 3.7 percent a year earlier but less than half of what investors expect. Rival Goldman Sachs Group Inc (GS.N: Quote), the No. 1 U.S. investment bank, posted a return on equity of 10.5 percent for the second quarter.

Net income attributable to common shareholders rose to $802 million, or 41 cents per share, in the second quarter from $564 million, or 29 cents per share, a year earlier.

Excluding special items, Morgan Stanley earned 45 cents per share, beating analysts' average estimate of 43 cents, according to Thomson Reuters I/B/E/S.   Continued...

A street sign stands near the Morgan Stanley worldwide headquarters building in New York May 8, 2009. REUTERS/Lucas Jackson