Morgan Stanley, the top global equity underwriter last year, reported profit that beat analysts’ estimates as brokerage earnings more than doubled and margins from that unit surpassed the firm’s goal for this year.
Fourth-quarter net income was $507 million, or 25 cents a share, compared with a loss of $250 million, or 15 cents, a year earlier, the New York-based company said today in a statement. Excluding accounting charges tied to the firm’s own debt, profit was 45 cents a share, beating the 27-cent average estimate of 24 analysts surveyed by Bloomberg.
Chief Executive Officer James Gorman, 54, is grappling with higher capital requirements and the firm’s failure to post revenue growth in the first nine months of last year. His plan to reduce costs through job cuts and pay deferrals helped fuel a 28% jump in the stock price in the past two months.
“It’s doing a good job in getting wealth management to start to grow quite meaningfully,” Christopher Wheeler, a bank analyst at Mediobanca SpA in London, said in a Bloomberg Radio interview before results were released. “They’ll be looking really hard at what they can do to make sure they don’t dilute what they have in terms of really strong franchises.”
Profit from global wealth management, overseen by Greg Fleming, surged to $581 million as revenue climbed 8% to $3.46 billion. The division’s pretax profit margin rose to 17% from 7% in the fourth quarter of 2011.
Morgan Stanley climbed to $22 in New York trading at 8:11 a.m. from $20.75 at the close yesterday.
Gorman’s plan to boost returns relies on higher profitability from the wealth-management division. Fleming has previously vowed to raise its pretax margin to the “mid-teens” by the middle of this year, and said last month that the increase can be obtained through cost cutting as integration expenses decline. The figure was 13% in the third quarter, excluding a one-time charge.
Morgan Stanley finished integrating its brokerage unit with Citigroup Inc.’s Smith Barney in July. The firm, which owns 65% of the joint venture, plans to ask the Federal Reserve for approval to buy the entire remaining stake this year, it said in a presentation today.
Revenue excluding accounting adjustments climbed to $7.48 billion from $5.46 billion a year earlier, when the firm booked a $1.7 billion loss related to a settlement with bond insurer MBIA Inc. Book value per share rose to $30.65 from $30.53 at the end of September. The firm’s return on equity, a measure of how well it reinvests earnings, was 3%.