“We had a stronger but not perfect fourth quarter,” Gorman said in an interview on CNBC. “We think of all the digging and shoveling and cleaning up that we’ve done the last few years, that’s done. Now we get back to the fun stuff, which is running the business.”
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 it back. The firm booked a $2.3 billion charge in the third quarter as its credit spreads tightened.
Morgan Stanley climbed 1 percent yesterday to $20.75, leaving the stock up 8.5% this month through yesterday. The shares advanced 26% in 2012, after falling 44% the previous year. They are 30% below where they traded when Gorman took over at the beginning of 2010.
Daniel Loeb’s Third Point LLC said this month it bought a stake in the firm, betting the shares may double as brokerage margins improve and management devises a “bold fix” for the bond-trading business.
Finding that solution falls to Colm Kelleher, who took control of the entire investment-banking and trading division this year as his co-head, Paul J. Taubman, 52, retired from that role. Kelleher, 55, is trying to boost the firm’s returns by cutting costs and reducing the amount of capital used by the trading business.
Fourth-quarter revenue from fixed-income sales and trading, run by Ken deRegt with commodity trading co-heads Colin Bryce and Simon Greenshields, was $811 million, excluding DVA. That missed estimates of $1.24 billion from JPMorgan Chase & Co.’s Kian Abouhossein and $1.1 billion from Credit Suisse Group AG’s Howard Chen.
Fixed-income revenue fell 44% from $1.46 billion in the third quarter. Goldman Sachs Group Inc.’s fixed-income revenue, excluding DVA, climbed almost 60% from a year earlier to $2.12 billion, the company said Jan. 16. Citigroup Inc.’s jumped 58% to $2.71 billion, while JPMorgan Chase & Co. posted a 21% increase to $3.18 billion.