GS Goldman Sachs Group Inc

By Liz Hoffman 

Morgan Stanley said its second-quarter profit rose to $1.76 billion as the Wall Street firm wrapped up the earnings season for large U.S. banks.

Shares rose 2.6% premarket as earnings and revenue beat the expectations of Wall Street analysts and the bank's trading revenue held up better than peers.

The New York investment bank reported earnings of 87 cents a share. Analysts had expected 76 cents, up from 75 cents a year ago. Revenue of $9.5 billion was up from $8.91 billion in the second quarter of last year, and ahead of analyst expectations of $9.09 billion.

During the second quarter, a three-month stretch of calm markets that has done little to jolt Wall Street businesses, big banks including J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. offset trading declines with gains in other businesses such as commercial lending or private-equity investing.

Morgan Stanley's antidote is its huge wealth-management business, which churns out steady profits even when markets snooze or climb slowly and methodically higher.

That business, which manages about $2.2 trillion in client assets, took in $4.15 billion in revenue last quarter, its best second quarter on record as it continues to sweep in client cash and find more profitable uses for it, like lending.

Loans to wealth clients hit a record $74 billion as of June 30, up from $70 billion three months ago. As interest rates rise, Morgan Stanley is hustling to lend out a surfeit of deposits it picked up in the multiyear acquisition of retail brokerage SmithBarney.

The bank's return on equity, a key measure of how profitably it invests shareholders' money, stood at 9.1% in the quarter. A 10% level is one of Chief Executive James Gorman's key objectives.

Morgan Stanley reported a 2.1% decrease in trading revenue, the smallest decline reported by any big bank this quarter. At Goldman, whose securities business most closely resembles -- and competes with -- Morgan Stanley's, trading revenue was off by 17%.

The figure that stands out is $1.24 billion from trading debt, currencies and other fixed-income products. That business is traditionally a laggard for Morgan Stanley, with its smaller balance sheet and history of bungling risk.

But it has been performing better over the past year following a leadership shake-up that saw its top stock trader, Ted Pick, take over all of sales and trading. This marks the fifth straight quarter of $1 billion-plus revenue, a bar set by Mr. Gorman last year, and once again tops Goldman Sachs, which continues to struggle in fixed-income trading and posted a 40% decline in that business Tuesday.

Revenue was flat in stock trading, Morgan Stanley's strength. The firm has outmaneuvered peers in courting business from so-called "quant" hedge funds that trade huge volumes of stocks in fractions of a second.

In investment banking, where Morgan Stanley is generally a top-three player, revenue rose 28%, as big gains in stock and debt underwriting overcame flat merger fees.

Write to Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

July 19, 2017 07:35 ET (11:35 GMT)

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