A sign is displayed on the Morgan Stanley building in New York, th US, July 16 2018. Picture: REUTERS/LUCAS JACKSON
A sign is displayed on the Morgan Stanley building in New York, th US, July 16 2018. Picture: REUTERS/LUCAS JACKSON

New York — Morgan Stanley wrapped up a week of wins for Wall Street trading desks, capitalising on the Federal Reserve’s extraordinary rescue measures with record profit.

Fixed-income trading revenue almost tripled, driving a 73% jump in total trading that surged past expectations, according to a statement on Thursday. That spurred revenue and earnings to record highs across the firm amid wild market swings caused by the coronavirus pandemic.

CEO James Gorman said the bank was well prepared to handle the crisis.

The strategy was to be ready so that “when markets are very active and volatile, we would still perform very well across our whole investment-banking franchise,” Gorman said in a Bloomberg Television interview. “This was that crisis, and that’s what we delivered.”

The gains brought the overall trading haul for the five biggest US investment banks to $33bn, a windfall that helped all of them survive the brunt of the coronavirus pandemic with profits intact.

As the Covid-19 outbreak intensified earlier in 2020, the Fed cleared the way for companies to access desperately needed cash with programmes that effectively served as credit backstops, allowing markets to thaw. That, in turn, spurred demand for Wall Street’s trading and underwriting services.

“It’s clear that a lot of people did well in light of client activity,” CFO Jonathan Pruzan said in an interview. While much of that has continued in the first few weeks of the third quarter, “we would expect a reversion to a more normalised level”, he said.

Morgan Stanley’s trading gains come at a critical juncture for the bank, which is leaning on the business to shore up earnings as it makes a bigger pivot towards managing money for others.

The bank’s pact to purchase E*Trade Financial in February is set to be the biggest acquisition by a top US bank since the financial crisis, and a sign of Gorman doubling down on the success of his firm’s Smith Barney purchase a decade ago.

Fixed-income trading revenue at Morgan Stanley came in at $3.03bn, compared with the $1.81bn analysts were predicting, based on estimates compiled by Bloomberg. Equities trading revenue rose to $2.62bn, higher than the $2.27bn average estimate.

Share performance

Morgan Stanley’s stock is up 2.4% since the start of the year, the best performance among the top five banks and a show of resilience that kept the firm’s market capitalisation above that of Goldman Sach — a perennial rival — for much of the year. Shares of the company climbed 1.8% to $52.28 in New York on Thursday.

Investment bankers at the firm posted revenue of $2.05bn on the strength of a 64% jump in underwriting revenue, as the firm took its share of the surge in new stock and debt issuance by corporate America.

Wealth-management revenue, which typically accounts for about half of Morgan Stanley’s total, rose 6% to $4.68bn.


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