Morgan Stanley, the best-performing stock this year among the five largest Wall Street banks, reported profit that beat estimates on a smaller drop in fixed-income trading revenue than analysts projected.
Second-quarter net income rose to $1.94 billion, or 94 cents a share, from $980 million, or 41 cents, a year earlier, the New York-based company said today in a statement. Excluding an accounting adjustment tied to the firm’s own debt and a tax benefit, profit was 60 cents a share, topping the 56-cent average estimate of 24 analysts surveyed by Bloomberg.
Morgan Stanley posted an 8% decrease in fixed-income trading, while larger rivals Citigroup Inc. and JPMorgan Chase & Co. saw declines of 12% and 15%, respectively. Chief Executive Officer James Gorman has cut jobs and sold commodity units in an effort to boost bond-trading returns to at least 10%.
“A lot of the bank’s big changes in fixed income have already been enacted,” Devin Ryan, an analyst at JMP Group Inc., said before the results were announced. “It’s about optimizing the assets that it has within fixed income and focusing on businesses that have higher return potential.”
Morgan Stanley rose 1.6% yesterday to $32.50 in New York trading. The shares climbed 3.6% this year, after jumping 64% in 2013 and 26% the year before.
The bank has shown progress in equity trading, where it passed Goldman Sachs Group Inc. in the first quarter, and wealth management, where it has increased profit margins. Still, return on equity has remained below 10%, the firm’s estimate of its cost of equity.
Morgan Stanley, which earned a return on equity of about 5% in each of the past two years, has a plan to “in 2015 and beyond, sustainably drive ROE at 10% or higher,” Gorman, 56, said at investor conference last month.