Morgan Stanley tops analysts’ estimates on trading revenue

Leverage Ratio

Morgan Stanley didn’t disclose its supplementary leverage ratio. U.S. regulators last week proposed minimum levels of 5% for holding companies and 6% for banking subsidiaries. The U.S. plan goes beyond the 3% global minimum requirement that the Basel Committee on Banking Supervision approved to help prevent a repeat of the 2008 financial crisis.

Revenue excluding accounting adjustments rose 26% to $8.33 billion. Book value per share increased to $31.48 from $31.21 at the end of March.

The accounting gain is known as a debt valuation adjustment, or DVA. It stems from decreases in the value of the company’s debt, under the theory it would be less expensive to buy it back. The firm had a $175 million gain from DVA, versus a $350 million benefit in the second quarter of 2012.

Pretax profit from global wealth management, overseen by Greg Fleming, 50, jumped 60% to $655 million as revenue climbed to $3.53 billion. The division’s pretax profit margin rose to 19%, a record since the joint venture was established in 2009, from 13% in the second quarter of 2012.

Wealth Management

The wealth-management unit can earn a pretax margin of more than 23% by 2015 as interest rates and stock markets climb, Gorman said last month. The unit can achieve a 20% to 22% margin absent any changes in the broader markets, he said.

In equities trading, headed by Ted Pick, Morgan Stanley’s revenue increased 58% from a year earlier to $1.81 billion, excluding DVA. That compared with $1.19 billion at Bank of America Corp. and $1.77 billion at Goldman Sachs Group Inc., excluding revenue from Goldman Sachs’s reinsurance business.

Keith Horowitz, an analyst at Citigroup, had estimated equities revenue of about $1.4 billion, while Barclays Plc’s Roger Freeman estimated $1.5 billion.

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