Morgan Stanley beats estimates on fixed-income revenue gains

Morgan Stanley (Getty Images) Morgan Stanley (Getty Images)

Morgan Stanley, the sixth-largest U.S. bank, reported third-quarter results that beat analysts’ estimates as revenue from fixed-income trading almost doubled from the second quarter.

Morgan Stanley posted a loss of $1.01 billion, or 55 cents a share, compared with a profit of $2.2 billion, or $1.15, a year earlier, the New York-based firm said today in a statement. Excluding accounting adjustments and a one-time restructuring cost, profit was about 35 cents a share, compared with the 25- cent average estimate of 22 analysts surveyed by Bloomberg.

Chief Executive Officer James Gorman, 54, is trying to improve returns at the brokerage unit and shrink the fixed- income trading division to reduce capital demands. The bank had the lowest first-half return on equity of the 10 largest U.S. lenders and is trading at two-thirds of its liquidation value, compared with 96 percent at Goldman Sachs Group Inc.

“The rebound in fixed-income and commodities sales and trading indicates that clients have re-engaged after the uncertainty of the rating review in the previous quarter,” Gorman said in the statement, referring to Moody’s Investors Service’s two-level downgrade of Morgan Stanley’s credit rating in June.

Morgan Stanley rose 1.6 percent to $18.78 at 7:39 a.m. in New York trading, adding to this year’s 22 percent rise through yesterday. The shares fell 44 percent in 2011, the biggest decline since 2008. They are 38 percent below where they traded when Gorman took over at the beginning of 2010.

Book Value

Revenue excluding accounting charges climbed to $7.55 billion from $6.40 billion a year earlier, and book value per share fell to $30.53 from $31.02 at the end of June.

The accounting charge is known as a debt-valuation adjustment, or DVA. It stems from increases in the value of the company’s debt, under the theory it would be more expensive to buy back the debt and extinguish the interest payments. Morgan Stanley booked a $3.4 billion gain in the year-earlier quarter as yields on its debt rose compared to Treasuries.

Third-quarter revenue from fixed-income sales and trading, which is run by Ken deRegt along with commodity trading co-heads Colin Bryce and Simon Greenshields, was $1.46 billion, excluding DVA. That topped estimates of $1.2 billion from Atlantic Equities LLC’s Richard Staite, and $1.1 billion from Barclays Plc’s Roger Freeman.

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