Morgan Stanley reported profit that beat analysts' estimates and the highest adjusted revenue in more than five years on increases in equity trading and brokerage revenue.
First-quarter net income rose 59 percent to $ 2.39 billion, or $ 1.18 a share, from $ 1.51 billion, or 74 cents, a year earlier, the New York-based company said Monday in a statement. Excluding an accounting gain and a tax benefit, profit was 85 cents a share, topping the 78-cent average estimate of 24 analysts surveyed by Bloomberg.
Chief Executive Officer James Gorman, 56, has won support from investors for his strategy of shrinking the fixed-income unit and relying more on trading stocks and advising wealthy individuals on their investments. Now he's seeking to boost return on equity above 5 percent for the first time since 2010, his first year on the job.
"They have a strong franchise in equities," Paul Gulberg, an analyst at Portales Partners LLC, said before the results were announced. "Cash and derivatives both did well in the quarter."
Morgan Stanley shares have fallen 5.3 percent this year, including a 1.6 percent drop on Friday. The stock more than doubled in the past 2 1/2 years, including a 24 percent jump in 2014 that led the biggest U.S. investment banks for a second straight year.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. reported earnings last week that topped analysts' estimates on increases in trading revenue. Bank of America Corp. and Citigroup Inc. each posted trading revenue declines of more than 5 percent.
CFO Job
Monday's earnings announcement will be the last for Chief Financial Officer Ruth Porat, who is leaving to take the same role at Google Inc. Morgan Stanley named Jonathan Pruzan as her successor last month. Pruzan was previously co-head of the financial-institutions banking group, the same job Porat held before she took the CFO job.
Morgan Stanley's announced results haven't stood for long in recent periods. In four of the five previous quarters, the firm cut its earnings because of legal or other costs within six weeks of reporting them to investors.
Morgan Stanley is in talks to settle a New York state probe into its marketing of mortgage-backed securities for about $ 500 million, mostly in the form of relief for struggling home buyers, the Wall Street Journal reported Sunday, citing unidentified people familiar with the matter. A final agreement isn't imminent and the size and terms are still being worked out, the newspaper said.
Buybacks, Dividends
Gorman has pledged to increase buybacks and dividends to reward shareholders and boost return on equity. The firm won Federal Reserve approval to raise its quarterly dividend to 15 cents a share and repurchase an average of more than $ 600 million of stock per quarter over the next five quarters, up from $ 250 million a quarter in the past 12 months.
Morgan Stanley had to cancel a request to buy back $ 4.9 billion in trust-preferred securities to receive approval from the Fed after it fell below a capital minimum with its first submitted plan in the annual stress test.
The firm has been shrinking capital dedicated to its fixed-income and commodities division and has sought to shed some units. The bank, along with rivals, has also faced congressional and regulatory scrutiny of its ownership of physical-commodities units.
The bank is gathering bids for its oil-merchanting business, including from Castleton Commodities International LLC, which offered more than $ 1 billion, a person briefed on the discussions said this month. The planned sale of the unit to OAO Rosneft fell apart last year after the Russian company was hit with U.S. sanctions.
Morgan Stanley posted the biggest increase in investment-banking revenue among major U.S. firms in 2014. It's the fourth-ranked adviser on global announced mergers and acquisitions so far this year, according to data compiled by Bloomberg.
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