Trading was the standout performer at Morgan Stanley, mirroring results from Wall Street rival Goldman Sachs © JUSTIN LANE/EPA-EFE/Shutterstock

Morgan Stanley closed out Wall Street’s earnings season on a high, with booming markets driving a 25 per cent increase in third-quarter earnings and fuelling the bank’s calls to be allowed to resume share buybacks.

The bank posted net income of $2.7bn for the quarter, far better than the $2bn predicted by analysts polled by Refinitiv. Revenues of $11.66bn were up 16 per cent year on year and beat the $10.6bn expected by analysts.

“Our shareholders who own the company are entitled to generate a decent return on the capital they’ve invested in the company,” Morgan Stanley chief executive James Gorman told analysts, criticising a Federal Reserve ban on America’s biggest banks buying back their stock until at least the end of the year.

“There is absolutely no reason . . . why we shouldn't be distributing capital, except that for right now it's the right thing to do for the broader community,” Mr Gorman added. He told investors he hoped to receive permission to resume buybacks in the first quarter and was open to returning more than 100 per cent of quarterly earnings once that happens.

Trading was the standout performer for the third quarter and helped drive Morgan Stanley to its second-highest quarterly revenue in history, mirroring results from rival Goldman Sachs, which almost doubled its third-quarter earnings.

Heatmap of US banking results, Q3 2020

At Morgan Stanley, fixed-income trading revenues were up 35 per cent year on year, to $1.9bn — a smaller rise than Goldman’s 49 per cent but better than the rest of Wall Street.

Morgan Stanley’s equities trading revenues rose 14 per cent to $2.3bn, while investment banking revenues were up 11 per cent to $1.7bn. This was driven by an almost 120 per cent rise in fees for underwriting initial public offerings, which offset a 35 per cent year-on-year fall in advisory revenues.

“I would say it was an extraordinarily constructive and positive backdrop,” chief financial officer Jon Pruzan told the Financial Times, referring to a quarter in which equities rallied as the Federal Reserve and US government pumped massive liquidity into the markets.

“What we need is open and functioning markets, which clearly we have, and we need clients who are engaged, which we clearly have,” he added.

Mr Pruzan said the conditions in the fourth quarter were “very constructive” in trading markets, and that the pipeline for mergers and acquisitions was improving, echoing comments from Goldman on Wednesday.

Strong market conditions also helped drive $200m of gains on Morgan Stanley’s investment and loans portfolio.

Glenn Schorr, analyst at Evercore ISI, wrote in a note to clients: “While this great backdrop can’t last for ever, it’s still pretty good and [Morgan Stanley] continues to execute its pretty balanced, more fee-based and steadily growing franchises very well.”

The third quarter was a big one for Morgan Stanley’s investment management division, which will soon be boosted by the $7bn acquisition of Eaton Vance announced last week. The division increased revenues by 38 per cent to $1bn, as it recorded net inflows and also benefited from rising asset values during a strong markets rally.

Morgan Stanley’s wealth management unit, which has just begun the integration of online brokerage ETrade, increased revenues by 7 per cent, to $4.66bn. Morgan’s Stanley’s shares rose slightly in early trading in New York.

The earnings close out a mixed earnings season. Profits at Bank of America, Citigroup, JPMorgan Chase and Wells Fargo rebounded strongly as massive loan loss charges from earlier in the year dissipated, but investors are fretting about the long-term drag of low interest rates on profitability. Morgan Stanley and Goldman Sachs are less vulnerable to that because they have much smaller loan books.

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