Bond business lifts Morgan Stanley

Morgan Stanley reported a 19 per cent jump in adjusted net revenues in the third quarter, boosted by increased demand for trades and sales of bonds.

Net revenues excluding an accounting adjustment rose to USD 7.6bn in the three months to September, compared with USD 6.4bn a year earlier. That equated to adjusted earnings per share of 28 cents - higher than the 25 cents expected by analysts. Morgan Stanley is attempting to transform its business in the aftermath of the financial crisis by weaning itself off of volatile trading and investment banking revenues as well as trimming expenses. The company is "unambiguously business not as usual," James Gorman, chairman and chief executive, has said. More News From Financial Times
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Morgan Stanley - going for brokerage Still, it was bond sales and trading, as well as, traditional investment banking which helped lift revenues at the bank in the most recent quarter as markets recovered. "The rebound in fixed income and commodities sales and trading indicates that clients have re-engaged after the uncertainty of the rating review in the previous quarter," Mr Gorman said in a statement on Thursday, referring to a downgrade of its credit ratings by Moody's earlier this year. "Our third-quarter results show a balanced, strategically focused franchise that has attained stronger revenues and executed on key goals," Mr Gorman said. Adjusted net revenues in institutional securities, where the bank trades bonds and stocks for its clients, expanded 20 per cent to USD 3.6bn. In wealth management net revenues increased slightly from USD 3.2bn a year ago to $3.3bn in the most recent quarter. In the third quarter Morgan Stanley agreed to buy the rest of the Smith Barney retail brokerage from Citigroup - a milepost in its post-crisis transformation. Citi and Morgan Stanley agreed a USD 13.5bn valuation of the business - a number which was widely regarded as favourable to Morgan Stanley. The figure was much lower than Citi had valued the business on its books and led to a USD 4.7bn pre-tax loss for the bank in the same quarter from the writedown of the brokerage. The valuation of Smith Barney has now become a key plank in speculation surrounding the abrupt resignation of Citi CEO Vikram Pandit this week. Citi board members were upset over Mr Pandit's handling of the unfavourable valuation. On an unadjusted basis, Morgan Stanley recorded a USD 1bn loss in the third quarter after taking a USD 1.6bn writedown on the increased value of its own bonds. The "debt valuation adjustment" requires banks to record losses when the value of their own bonds increases, but is due to be phased out of accounting rules.