Morgan Stanley headquarters

Morgan Stanley brought the curtain down on the big US banks' earnings season in positive fashion, with a double-digit rise in revenues and profits that exceeded analysts’ expectations.

Net revenues were 13 per cent stronger during the second quarter at the Wall Street bank, which benefited from a resilient performance from the trading unit where revenues were up almost a third from a year earlier.

The core wealth management division also put in a solid 5 per cent rise in revenues and a 20 per cent rise in profits.

Overall, reported earnings dropped about 5 per cent to $1.8bn. But after stripping out the effects of a tax benefit a year ago and a fall in the value of the bank’s own debt, net income from underlying operations rose about a third to $1.5bn.

Earnings per share of 79 cents, excluding the accounting gain, compared with estimates of 74 cents.

Shares initially rose as much as 2 per cent on the results but were flat by mid-morning in New York trading.

James Gorman, chairman and chief executive, said Morgan Stanley had delivered a “strong quarter” across each of its businesses, “through client-focused execution, expenses discipline and prudent risk management”.

Morgan Stanley was the last of the big six US banks to report — including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs — for a rise in combined net profits to $24.9bn, up from $24.4bn a year earlier.

All the results were boosted by cost-cuts, following modest revenue growth in retail businesses such as mortgages, and brighter performances from the advisory units of investment banking divisions.

Morgan Stanley’s star turn came from the sales and trading division, where revenues came to $3.5bn — down 14 per cent from a high-volatility first quarter, but up 32 per cent from the same period a year earlier.

Jonathan Pruzan, the bank’s newly-appointed chief financial officer, said the equities division was a “standout,” with revenues rising 28 per cent to $2.3bn despite a lot of “bad volatility” in the market principally caused by fears over Greece.

Last week Goldman and JPMorgan reported trading revenue had fallen about a tenth from a year earlier, while BofA and Citi also said revenues had slipped.

A blot on the landscape for Morgan Stanley was the rising cost of pay and benefits, which were up 5 per cent from a year earlier, bucking a sector-wide trend on compensation.

The bank blamed a broad push for revenues, noting that overall pay had dropped 3 per cent from the previous quarter and that the group-wide compensation ratio — which measures pay and benefits as a proportion of net revenues — dropped to 45 per cent from 49 per cent a year earlier.

Legal and consulting fees also rose, thanks to regulatory projects in the quarter including new daily reports on liquidity metrics, the preparation of a more thorough resolution plan, and the run-up to the Volcker rule, which comes into full effect on Tuesday. Non-compensation expenses came to $2.6bn for the quarter, from $2.5bn a year ago.

Overall, the group’s return on equity was 9.1 per cent, excluding swings in the value of its debt, short of its 10 per cent target.

Morgan Stanley’s big challenge remains to “right-size and refine” its investment bank, said Brennan Hawken, analyst at UBS, before the release of Monday’s results.

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