Morgan Stanley profit beats estimate; raises margin target

Fri Jan 17, 2014 2:50pm EST
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By Lauren Tara LaCapra and Tanya Agrawal

(Reuters) - Morgan Stanley posted stronger-than-expected fourth-quarter results, as its retail brokerage and asset management businesses won more assets from clients and benefited from rising stock markets.

The bank's retail brokerage business, which manages money for wealthy clients, reached the company's pretax profit margin target, and Morgan Stanley raised that target for the coming years.

The results underscored how Morgan Stanley, the second largest U.S. investment bank, has retooled itself since the financial crisis. It now earns more revenues from brokerage and asset management than traditional investment banking businesses like underwriting stock offerings and trading bonds.

Its shares rose 4.5 percent to $33.46.

"We've said pretty consistently we're one step at a time management team," Chief Executive James Gorman said on a conference call, to explain gradual updates to the bank's strategic plan. Three years ago, he said, Morgan Stanley's return on equity was roughly 2 percent, and has since risen to 5 percent and then 7 percent, with a current goal of 10 percent.

The investment banking businesses, particularly bond trading, were a drag on results in the quarter, and helped pull down Morgan Stanley's profit. Net income for common shareholders in the fourth quarter fell to $133 million, or 7 cents a share, from $568 million, or 29 cents, in the same quarter in 2012.

Excluding items such as $1.2 billion in legal expenses, the bank earned 50 cents per share, according to Thomson Reuters I/B/E/S, beating the average analyst estimate of 45 cents.

The retail brokerage business generated $3.73 billion in revenue in the quarter, up from $3.33 billion a year earlier.   Continued...

The corporate logo of financial firm Morgan Stanley is pictured on a building in San Diego, California September 24, 2013. REUTERS/Mike Blake