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Morgan Stanley Profits Surge, Top Estimates: Q3 Earnings

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Morgan Stanley (MS) said its third-quarter profits soared 62% to $1.5 billion, or $0.81 a share, vs. $939,000, or $0.48 per share, a year ago. Revenues grew 15% to $8.9 billion, up from $7.8 billion in the year-ago period. Results beat analysts’ estimates.

“We had a better quarter. What I’m pleased about is we did it with 25% less people,” said CEO James Gorman during a call with equity analysts.

While fixed-income trading revenue was $1.5 billion, equity trading expanded to $1.9 billion.

“Fixed income was quite strong this quarter. It was a better trading environment for us, particularly given our skew toward credit,” CFO Jonathan Pruzan said in an interview with Bloomberg.

Compensation expense of $4.1 billion topped last year’s $3.4 billion, but non-compensation expenses fell to $2.4 billion from $2.9 billion.

Institutional Securities reported net revenues of $4.6 billion, up 17% from last year, on strong net income of $1.4 billion—a jump of 101% from the year-ago quarter.

Wealth Management

Wealth Management net revenues in Q3 were $3.9 billion, up 7% from last year and 2% from the prior quarter.

After-tax net income for the unit was $564 million, representing an 11% year-over-year improvement as well as a 9% quarter-over-quarter increase.

Pre-tax profits were $901 million, giving the unit a pre-tax margin of 23% — the strongest performance since Morgan Stanley Smith Barney formed seven years ago, according to the company.

“This quarter we saw record revenues in Wealth Management …,” said Gorman in a statement. “Overall, the results reflect steady progress against our long term strategic goals.”

Other Measures

Total client assets of $2.09 trillion surpassed last quarter’s $2.03 billion and last year’s $1.93 trillion.

Record fee-based assets stand at $855 billion, or 41% of total assets.

Fee-based asset flows were $13.5 billion, up 13% from the prior quarter and 75% from Q3’15.

Client loan balances totaled $70 billion as of Sept. 30 vs. $69 billion on June 30 and $61 billion a year ago.

There are now 15,856 advisors in the wealth unit, down about 50 from the second quarter but up a similar number from Sept. 30, 2015.

Average assets per advisor are roughly $132 million, while the average yearly level of fees & commissions is $977,000.

Rival Bank of America-Merrill Lynch said last week that its reps have an average annual production level of $983,000. The group’s asset flows, however, were $10.2 billion in Q3’16. Its wealth-management profits grew 10% in the most-recent quarter.   

— Related on ThinkAdvisor: 12 Best & Worst Broker-Dealers: Q2 Earnings, 2016