Morgan Stanley reported higher-than-expected second-quarter profit as its expanded stable of traders helped it win new business.
The New York bank reported an unexpectedly large jump in adjusted earnings, sending its shares up 8 percent in early trading.
Morgan Stanley delivered its results a day after chief rival Goldman Sachs Group Inc reported an unusually narrow profit amid weakness in trading and investment banking.
Morgan Stanley is very impressive, particularly in light of what happened to Goldman in the same period, said Gary Townsend, president and CEO of Hill-Townsend Capital. Their trading revenues were not off nearly so much.
Morgan Stanley's return on equity from continuing operations was 12.2 percent, higher than Goldman's adjusted 9.5 percent for the quarter.
The higher returns came even though Morgan Stanley took about the same risk as Goldman, by one measure: its trading value-at-risk was $139 million during the quarter, compared with $136 million for Goldman.
Value at risk indicates the firm's biggest possible loss in a single day for 95 percent of the trading days in the quarter.
Goldman reported big drops in sales and trading revenue, particularly in fixed income, citing weaker results in areas including corporate bonds, government debt, currencies, and related derivatives.
Morgan Stanley said it saw more customer business in those areas, implying that its hiring of hundreds of traders over the last year has paid off.
Chief Financial Officer Ruth Porat said the firm's revamped global institutional securities division held up well during a difficult, volatile quarter.
It was a challenging market, Porat said in an interview. It is also the kind of environment where your clients want you.
The bank said adjusted earnings were $1.4 billion, or 80 cents a share, compared with a loss of $138 million, or $1.36 a share, a year earlier.
Analysts on average expected earnings of 46 cents a share, according to Thomson Reuters I/B/E/S.
The bank reported net revenues of $4.5 billion in its institutional securities unit, up 52 percent from the year-ago quarter.
John Mack and James Gorman are beginning to pull this thing together, said Mike Holland, founder of Holland & Co in New York, which oversees more than $4 billion of assets. Mack is Morgan Stanley's chairman, and Gorman is its chief executive.
Morgan Stanley also showed signs that its bet on wealth management is beginning to pay off. Net revenues in its global wealth management group were $3 billion, up 60 percent from a year ago.
(Reporting by Steve Eder; editing by John Wallace)