Morgan Stanley achieves 83 percent profit in Q4

Bloomberg

Morgan Stanley reported an 83 percent increase in fourth-quarter profit as fixed-income trading revenue more than doubled, surpassing analysts’ estimates.
Net income climbed to $1.67 billion, or 81 cents a share, from $908 million, or 39 cents, a year earlier, the New York-based company said on Tuesday in a statement. The 2015 figure includes a 4-cent accounting charge that’s since been discontinued. The results beat the 65-cent average estimate of 21 analysts in a Bloomberg survey.
Chief Executive Officer James Gorman, 58, has pledged to improve returns by cutting costs and making bond-trading earnings more predictable after that business weighed on profitability in previous quarters. Gorman said in June that fixed income and commodities could generate $4 billion in annual revenue even after his decision to cut 25 percent of the division’s staff in late 2015.
Morgan Stanley climbed 1.9 percent to $44.66 in early trading at 7:04 a.m. in New York. The stock has surged 69 percent in the past 12 months.
Revenue from the bond business more than doubled to $1.47 billion, exceeding analysts’ estimates of $1 billion and the largest increase among banks that have already reported results. Morgan Stanley’s president, Colm Kelleher, said in December that he was seeing “a bit of over-exuberance” in the market about the strength of the rebound.
Equity trading climbed 7.3 percent to $1.95 billion, compared with the estimate of $1.84 billion. The company is cutting its global bonus pool for the division by as much as 4 percent and dismissing some employees after a downturn in industry revenue, people familiar with the plans said earlier this month. Ted Pick has overseen trading at Morgan Stanley since late 2015, and he installed Sam Kellie-Smith as head of bond trading and Peter Santoro to run stock trading.

Compensation Costs
Revenue rose 17 percent to $9.02 billion, beating the $8.48 billion average estimate. Noninterest costs increased 8 percent to $6.78 billion, above analysts’ $6.37 billion estimate. Compensation, the firm’s biggest expense, climbed 12 percent to $4.08 billion on higher trading revenue. Analysts estimated $3.86 billion.
Annualized return on equity, a gauge of profitability, was 8.7 percent. The firm’s target is 9 percent to 11 percent by the end of 2017.
Wealth-management revenue climbed 3 percent to a record $3.99 billion, as profit jumped 16 percent to $891 million.
Investment-banking revenue rose 5 percent to $1.38 billion from a year earlier on higher levels of completed mergers and issuance of non-investment-grade debt. The business is part of the institutional securities group, which posted a 35 percent increase in revenue on the trading gains.
Bond-trading revenue also helped JPMorgan Chase & Co., the biggest U.S. bank. It said last week that fourth-quarter profit rose 24 percent on fixed-income gains. Bank of America Corp., No. 2 by assets, posted a 43 percent jump in profit as revenue from bond trading climbed 12 percent. Wells Fargo & Co.’s net income increased to $12.4 billion from $11.6 billion a year earlier.