Morgan Stanley rides trading desk to strong third quarter

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Morgan Stanley Chief Executive James Gorman has spent billions in recent months to make the megabank less reliant on trading, but Morgan Stanley’s traders bucked the pandemic to deliver a big quarter.

The Wall Street behemoth said third-quarter profit surged 25 percent to $2.7 billion, or $1.66 a share, on $11.7 billion in revenue. The results blew past the expectations of analysts, who had predicted $1.28 a share on revenue of $10.65 billion.

Trading revenue played a key role, as Morgan Stanley’s sales and trading team rode a frothy stock market to a 20 percent revenue increase from last year, netting $4.1 billion for the three months ending in September — $400 million more than analysts projected.

“We delivered strong quarterly earnings as markets remained active through the summer months,” Gorman wrote in a statement announcing the results. “And our balanced business model continued to deliver consistent, high returns.”

But while Morgan Stanley’s overall results were strong, they were not as potent as Goldman Sachs’ third quarter results on Wednesday, and Morgan Stanley’s stock price appears to be paying a price for the comparison with shares up only very slightly in pre-market trading.

Gorman might also be suffering from great expectations as Wall Street has come to realize that banks with larger consumer businesses are faring much worse as eight months of COVID-19 have taken a massive toll on the credit market, creating a wave of defaults on loans that has yet to crest.

Morgan Stanley has almost negligible exposure to consumer banking.

But Gorman’s vision for Morgan Stanley’s future was buoyed by a strong performance by the bank’s asset management division, which posted 20 percent growth year-over-year.

Gorman also said he believes his bank should be allowed to start buying back its stock and increasing its dividend in early 2021. The Federal Reserve has handcuffed banks on deploying capital to strengthen their share price this year, warning CEOs that they should be holding extra capital in reserve to weather the unprecedented uncertainty brought about by the pandemic.

“We’re overcapitalized,” Gorman said on a call with analysts discussing the results. “That’s the bottom line.”

Gorman spent more than $20 billion to bulk up that business through his recent acquisition of E*Trade and his recently announced purchase of bond trading giant Eaton Vance.

“We added these acquisitions from a position of strength,” Gorman told analysts, adding on Eaton Vance, “Frankly, it was too good of an opportunity to pass up.”

Gorman did not update Morgan Stanley’s return to office plans after months of COVID-enforced remote working. He personally recovered from the deadly virus after testing positive in late March.

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