Morgan Stanley posted profit that beat analysts’ estimates as the firm reported a surprise gain in bond-trading revenue and compensation costs that were lower than expected.
Net income fell 5 percent to $1.58 billion, or 75 cents a share, from $1.67 billion, or 79 cents, a year earlier, the New York-based company said Wednesday in a statement. That exceeded the 60-cent average estimate of analysts surveyed by Bloomberg.
Chief Executive Officer James Gorman, 58, is cutting costs and trying to boost trading and wealth-management returns. He scaled back the struggling bond-trading division last year, and in January set a $1 billion cost-cutting goal. The effort paid off in the second quarter, as the ratio of compensation to revenue fell to 45.1 percent. That beat the 47 percent estimate of Chris Kotowski, an analyst at Oppenheimer & Co.
“We’ve seen Morgan Stanley cut back and cut back so it’s very impressive that we’re seeing this fixed-income performance,” Brad Hintz, an adjunct professor of finance at New York University’s Stern School of Business, said in a Bloomberg Radio interview.
Morgan Stanley climbed 0.6 percent to $28.35 at 10:03 a.m. The stock has dropped 10 percent this year, trailing the 1.1 percent decline for the 92-company S&P 500 Financials Index.
Revenue Beats
Revenue fell 6.8 percent to $8.91 billion, exceeding the $8.31 billion average estimate of 19 analysts. Compensation, the firm’s biggest expense, dropped 8.9 percent to $4.02 billion.
Fixed-income trading revenue rose 2.4 percent to $1.3 billion, exceeding analysts’ estimates of $1.01 billion. Equity trading was $2.15 billion, a 5.5 percent drop that beat estimates of $2.11 billion.
Gorman said in June that the fixed-income and commodities business is capable of generating $4 billion in annual revenue even after the pullback he initiated, which included a decision to cut 25 percent of the unit’s staff at the end of last year.
‘Significant Positive’