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Oct 19

Morgan Stanley profit rises nearly 62% as bond trading surges

Morgan Stanley

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Morgan Stanley reported a better-than-expected quarterly profit on Wednesday, boosted by a surge in bond trading that followed Britain's surprise vote to leave the European Union and bouts of anxiety about monetary policy around the world.

Earnings applicable to shareholders rose 61.7 per cent to US$1.52 billion from US$939 million for the quarter ended Sept. 30, while earnings per shares rose to 81 cents from 48 cents.

Earnings per share from continuing operations was 80 cents, far above the average analyst estimate of 63 cents, according to Thomson Reuters I/B/E/S.

Adjusted revenue from sales and trading of fixed-income securities and commodities more than doubled to US$1.5 billion, boosting total revenue by 14.7 per cent to US$8.91 billion. Analysts had expected revenue of US$8.17 billion.

Morgan Stanley wraps up a surprisingly strong quarter for big U.S. banks. Goldman Sachs Group Inc, Morgan Stanley's closest rival, reported a stronger-than-expected 58 per cent rise in third-quarter profit on Tuesday, driven by a 34 per cent rise in revenue from trading bonds, currencies and commodities.

Morgan Stanley's shares were up 0.7 per cent at US$32.55 in premarket trading.

"This quarter we saw record revenues in wealth management and a strong performance in our sales and trading business," Chief Executive James Gorman said in a statement.

The bank's compensation costs rose 19.2 per cent to US$4.10 billion in the quarter, while non-compensation costs fell 14.9 per cent to US$2.43 billion.

Morgan Stanley is in the midst of a cost-cutting program that it hopes will save US$1 billion by 2017.

Revenue from wealth management, an area Gorman has been focusing on, rose 6.6 per cent to US$3.88 billion, accounting for nearly 44 per cent of total revenue.

Equities sales and trading revenue, a traditional bright spot for the bank, rose to US$1.9 billion from US$1.8 billion.

Revenue from investment banking, which includes fees from mergers and for underwriting equity and debt offerings, fell about 7 per cent to US$1.23 billion.

Morgan Stanley's annualized return on average common equity - showing how well it is using shareholder money to generate profit - was 8.7 per cent in the quarter, compared with 8.3 per cent in the second quarter.

Gorman, who took the helm at the bank in 2010, has an ROE target of 9-11 per cent by the end of 2017.

Morgan Stanley ranked third to Goldman Sachs and JPMorgan Chase & Co in M&A fees collected during the quarter and fourth behind and JPMorgan, Bank of America Corp and Goldman in fees from investment banking, which includes equity and debt underwriting, according to Thomson Reuters data.

The bank was exclusive financial adviser to Microsoft Corp in its US$26.2 billion deal to buy LinkedIn Corp .

Up to Tuesday's close, Morgan Stanley's shares had risen 1.6 per cent since the start of the year, outperforming those of Goldman Sachs, which fell 4.2 per cent.