This is why James Gorman wanted Smith Barney.
While Morgan Stanley suffered the same bond-trading slump that afflicted rivals, the firm’s wealth management business carried it to improved profit last quarter. That division — which Gorman made a central part of the bank’s future as a driving force behind the crisis-era acquisition — posted its third straight quarter of record pretax earnings.
The business of managing money always promised to insulate Morgan Stanley from swings in trading revenue tied to the whims of hedge-fund clients. That promise has been realized over the last six months, when volatility hit new lows and stock markets set record highs. As a result of Chief Executive Officer Gorman’s strategic moves, the firm earns the biggest share of revenue from wealth management of the six biggest U.S. lenders.
“Our third quarter results reflected the stability our wealth management, investment banking and investment management businesses bring when our sales and trading business faces a subdued environment,” Gorman said in a statement on Tuesday.
Bond-trading revenue fell 21% to $1.17 billion, compared with the $1.15 billion estimate of analysts surveyed by Bloomberg. Equities trading was little changed at $1.89 billion, compared to the $1.86 billion estimate.
Return on equity, a gauge of profitability, rose to 9.6% from 8.7% a year earlier. Gorman has targeted 9% to 11% for 2017.
Shares rose 1.5% to $48.94 in pre-market trading in New York.
Wealth-management revenue advanced 9% to $4.22 billion, compared with the $4.1 billion prediction of KBW Inc. Pretax profit from that business rose 24% to $1.12 billion.
Morgan Stanley’s net income rose 12% to $1.8 billion, or 93 cents a share, from $1.6 billion, or 81 cents, a year earlier. That compares with the 82-cent average estimate of 19 analysts surveyed by Bloomberg.
Several firms reported earnings that exceeded analysts’ estimates despite the drag from lower bond-trading revenue. JPMorgan Chase & Co., the biggest U.S. bank, said profit rose 7.1% to $6.73 billion. Bank of America Corp., the second largest, said profit climbed 13% to $5.59 billion and Citigroup Inc. said net income rose 8% to $4.13 billion.