Morgan Stanley’s Profit Surges in Q1 2017 on Solid Bond Trading

Since 2012, Morgan Stanley’s FIC unit has gone through several staff reductions.

Investment banking giant Morgan Stanley continued an upbeat earnings season for the big US banks, posting a 74 percent rise in the Q1 2017 profits, buoyed by a solid performance for bond-trading. Shares of Morgan Stanley rose 2.4 percent in pre-market trading.

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Earnings soared to $1.93 billion in the three months through March 2017 from $1.13 billion a year earlier, while earnings per share increased to $1 a share from 39 cents in Q1 2016.

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The fixed-income sales and trading unit was a standout, recording net revenues of $1.7 billion, almost triple the figure registered a year ago and also stronger than those of arch rival Goldman Sachs. Analysts have been keen to hear what Morgan Stanley has to say about the future of the bond-trading unit, which has been squeezed in recent years by a combination of tighter regulation, a shift to electronic trading and weak activity among clients.

Since 2012, Morgan Stanley’s FIC unit has gone through several staff reductions and reduced risk-weighted assets by hundreds of billions of dollars. This unit was once accounting for more than 20 percent of the group total, with revenues of $9.6 billion in 2006, well ahead of equities at $6.3 billion in the same year. But the downturn after the 2008 crisis persuaded the bank to protect its leadership in equities than chase market share in debt and commodities.

Commenting on the results, the lender’s CEO James Gorman and CFO Jonathan Pruzan said on a conference call with analysts: “Morgan Stanley’s traders managed to navigate inconsistent trading conditions through the quarter and picked up market share along the way. Performance was particularly good in the Americas region, helped by the Federal Reserve’s decision to raise interest rates in March.”

Referring to the staff cuts, they added: “We went through a major restructuring. We’re now generating significantly more revenues than we had before that restructuring with lower expenses and less people, so the operating leverage in that business has been very good.”

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