Morgan Stanley tops analysts’ estimates on trading revenue

Fixed Income

Second-quarter revenue from fixed-income sales and trading, run by Michael Heaney and Rob Rooney with commodity trading co- heads Colin Bryce and Simon Greenshields, was $1.15 billion, excluding DVA. That compared with estimates of $1.2 billion from JPMorgan Chase & Co.’s Kian Abouhossein and $1.3 billion from Freeman at Barclays.

Fixed-income revenue rose 50% from $770 million in the year-earlier quarter. This year’s figure compared with $2.46 billion at Goldman Sachs and $3.37 billion at Citigroup.

“We reduced risk in May given concerns about the potential market volatility within fixed-income products,” Porat said. “Our view is that sets us up well going forward to support higher client activity.”

Morgan Stanley’s jump in fixed-income revenue came as it navigated markets that rival banks described as challenging. Long-term interest rates rose and risk premiums on debt widened in June after Fed Chairman Ben S. Bernanke indicated the central bank might taper its $85 billion in monthly bond purchases, which have boosted demand for higher yielding assets.

Moody’s Review

The increase marks a rebound from last year’s second quarter, when the firm posted its lowest fixed-income revenue in more than two years. The company has said the underperformance was caused in part by clients halting some trading amid a Moody’s Investors Service review of its credit rating that quarter, which resulted in a downgrade.

Heaney and Rooney were named to oversee the fixed-income business in May after Ken deRegt left to join investment firm Canarsie Capital Group. Gorman laid out a plan in June to boost returns in fixed-income trading above the company’s cost of equity after four of the five units failed to meet that metric last year.

Part of that plan may be a change to the firm’s commodities business. The firm is cutting 10% of its workforce in commodities, a person briefed on the matter said last month. Gorman said in June that he’s “carefully re-evaluating” the proper structure for the commodities unit after holding talks with Qatar’s sovereign-wealth fund last year about selling a stake in the business.

Investment Banking

Investment banking, led by Mark Eichorn and Franck Petitgas, generated $1.08 billion in second-quarter revenue. That figure, up 22% from a year earlier, included $333 million from financial advisory, $327 million from equity underwriting and $418 million from debt underwriting.

Morgan Stanley was the second-ranked underwriter of global equity, equity-linked and rights offerings in the first half, behind Goldman Sachs, according to data compiled by Bloomberg. It was the No. 3 adviser on global announced mergers and acquisitions and the seventh-ranked underwriter of U.S. bonds, the data show.

Asset management reported a pretax profit of $160 million, compared with $43 million in the previous year’s period.

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