Morgan Stanley Posts Solid Financials in Q4 2016 on Fixed-Income Revenue Surge

Morgan Stanley, one of the world's largest investment banks, said on Tuesday that its fourth quarter net income rose 87% on the strength of its trading business. Net income for the period was $1.7 billion, compared with income of $908 million for the same quarter a year ago.

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Per-share earnings were 81 cents, handily beating the 39 cents reported in Q4 2015 and a profit of 65 cents a share according to the analysts polled by Reuters.

Revenue for the institutional securities unit, Morgan Stanley's largest division that handles corporate deals consulting and trading, rose 35% year-over-year to $4.6 billion, the New York-based company said in a statement.

Meanwhile, advisory revenue rose to $628 million from $516 million a year ago on higher levels of completed d M&A activity. In addition, equity trading generated $2.0 billion of revenue, up from $1.8 billion in Q4 2015 as it traded more derivatives.

Revenues at Morgan Stanley’s fixed income, currencies and commodities business totaled $1.5 billion, nearly tripled from $550 million last year reflecting "higher results across products on improved market conditions compared with the prior year period," it said. Chief Executive Officer James Gorman said in June that the fixed-income and commodities business can generate $4 billion in annual revenue even after his decision to cut a quarter of the division’s staff last year.

Annualized return on equity, a gauge of profitability, was 8.7 percent, just shy of its current goal of 9%-11%.

Morgan Stanley is the fourth of the six biggest U.S. banks to report results. JPMorgan Chase & Co., the biggest U.S. bank, last week posted earnings that beat analysts’ estimates on a 24 percent surge in fixed-income trading revenue. Bank of America Corp topped estimates on a 43 percent jump in revenue from the same business. Wells Fargo & Co.’s net income also increased to $12.4 billion from $11.6 billion a year earlier.

Goldman Sachs Group Inc. and Citigroup Inc. are scheduled to report results Wednesday.

Jonathan Pruzan, Chief Financial Officer at Morgan Stanley, commented: “Going into 2017, the market sentiment is clearly more optimistic than we were going into 2016. The tone is better, all the markets are open and constructive, which is not where we were last year. So from a sales and trading perspective, we continue to see good levels of activity.”