Via Financial Times

Morgan Stanley’s third-quarter revenues hit their highest level in a decade after the US bank was boosted by bond trading and investment banking fees, highlighting the widening gulf with its closest rival Goldman Sachs.

Wall Street’s sixth-biggest bank reported expectation-beating revenues of $10bn for the third quarter, up 2 per cent year-on-year with net earnings rising 3 per cent to $2.17bn.

The results, which were rewarded with an early 3.6 per cent rise in Morgan Stanley’s share price, contrasted starkly with Goldman, which this week blamed a 27 per cent fall in third-quarter profits on investment losses.

“They are two companies that are in different stages of transforming themselves for a new world,” said Brennan Hawken, an analyst at UBS. “This is the before and after picture.”

Fixed income, a battleground for investment banks in the wake of post-crisis regulation and higher competition from electronic traders, was the standout performer for Morgan Stanley in the third quarter, as revenues rose 21 per cent to $1.43bn.


Morgan Stanley’s revenues for the third quarter, up 2% year on year

Jon Pruzan, chief financial officer, told the Financial Times that since its “significant” restructuring, the bank had kept “gaining momentum and share and we feel very good about that business”. He added that the results were helped by an environment that favoured macro trading, in which Morgan Stanley is heavily invested.

Morgan Stanley cut the headcount of its fixed-income staff by 25 per cent in late 2015. Goldman, which has not yet cut as deeply as its rival, reported fixed-income revenues of $1.41bn for the quarter, leaving it a shade behind Morgan Stanley after a year-on-year increase of 8 per cent. David Solomon, who vowed to improve profits in Goldman’s fixed-income business when he took over as chief executive a year ago, may make further changes when he unveils a new strategic plan in January.

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The fates of Morgan Stanley and Goldman Sachs also diverged in investment banking, where the former reported a 5 per cent rise in fees year-on-year for the third quarter; fees at Goldman’s bigger investment banking division fell 15 per cent. Mr Pruzan called out bond issuance as an area where Morgan Stanley was particularly strong, helped in part by some “strategic hiring”.

About 40 per cent of Morgan Stanley’s money is made in wealth management, a division that chief executive James Gorman said was “clearly stabilising the firm”. Revenues in the unit dipped 1 per cent in the third quarter, partly because of lower interest rates depressing net interest income, a phenomenon expected to persist in the fourth quarter. Morgan Stanley’s investment management revenues rose 17 per cent to $764m.

“Our consistent performance shows the stability of our business model,” Mr Gorman said.