Morgan Stanley, owner of the world’s biggest brokerage, rose the most in seven months after earnings from that business more than doubled and the firm reached profit-margin targets six months ahead of schedule.
Morgan Stanley surged 6 percent to $21.99 at 10:06 a.m. in New York. The shares rose as much as 7 percent earlier today, the biggest intraday gain since June 6.
The brokerage’s higher profitability strengthens Chief Executive Officer James Gorman’s plan to boost returns as he requests regulatory approval to buy Citigroup Inc.’s remaining 35 percent stake in the business. Earnings at the brokerage, run by Greg Fleming, surged to $385 million in the fourth quarter and the pretax profit margin rose to 17 percent from 7 percent a year earlier.
“We’re seeing the margins move up on wealth management, that’s the encouraging thing,” Brad Hintz, an analyst at Sanford C. Bernstein & Co., said in a Bloomberg Radio interview. “If he’s getting a 17 percent pretax margin in retail without the flow, this implies that when retail comes back, that’s when the margins really pop.”
Fleming, 49, previously vowed to raise his unit’s pretax margin to the “mid-teens” by the middle of this year, and said last month that the increase can be obtained through cost cutting as integration expenses decline. The figure was 13 percent in the third quarter, excluding a one-time charge.
Gorman, 54, is reducing costs through job cuts and pay deferrals, a strategy that helped fuel a 28 percent jump in the stock price in the past two months before today. Morgan Stanley finished integrating its brokerage unit with Citigroup’s Smith Barney in July.
Fourth-quarter net income was $507 million, or 25 cents a share, compared with a loss of $250 million, or 15 cents, a year earlier, the company said today in a statement. Excluding accounting charges tied to the firm’s own debt, profit was 45 cents a share, beating the 27-cent average estimate of 24 analysts surveyed by Bloomberg.
“We’ve done a lot of building, and it’s at the point now where we feel we’re pivoting from those cleanups and building activities to now just running the business,” Gorman said in a Bloomberg Television interview. “If anything can get management excited, it’s about looking forward and actually running the business, rather than looking backwards and trying to solve things from the past.”