Morgan Stanley’s 1st-quarter profit jumps to $1.41 billion on strong trading operations

Morgan Stanley’s profit of $1.41B tops forecasts

NEW YORK — Morgan Stanley said Wednesday its first-quarter profit surged to $1.41 billion on strong results from its trading operations. The investment bank easily topped analysts’ expectations.

Morgan Stanley said its earnings, which compare with a loss of $578 million a year ago, also came on a jump in its retail brokerage business. That’s a sign that individual investors might be getting more comfortable with returning to the stock market.

The investment bank, which was criticized last year for being too conservative as markets recovered, said it had $4.1 billion in sales and trading revenue, almost triple the $1.4 billion of a year earlier. Other banks with large trading operations, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., also used trading profits to beat earnings’ forecasts.

The company’s stock rose $1.37, or 4.5 percent, to $31.82 in midday trading.

Banks have been profiting from continuing low interest rates that allow them to borrow money cheaply and put it into higher-yielding investments such as stocks.

Ruth Porat, the bank’s chief financial officer, said during a conference call with analysts that Morgan Stanley expects interest rates to remain low, which will help drive business in the coming quarters.

She also said the economy is improving. She repeated statements by executives at other banks in recent days.

“The global economy, it continues to heal and stabilize with positive data suggesting some durability to the recovery,” Porat said.

During the second half of last year, Morgan Stanley’s top executives vowed to expand the banks trading operations to avoid falling behind competitors and take advantage of the favorable market conditions.

CEO James Gorman, who took over from John Mack at the beginning of the year, said in a statement that the expansion of the sales and trading business “is beginning to pay off.”

Morgan Stanley’s profit after payment of preferred stock dividends came to 99 cents per share on revenue of $9.08 billion. Earnings also got a boost from a special $382 million tax benefit. The benefit lifted earnings by 21 cents per share.

Analysts polled by Thomson Reuters forecast the bank would earn 57 cents per share on revenue of $7.94 billion. Analysts do not typically include special one-time gains in their estimates.

Morgan Stanley said its investment banking business revenues rose to $887 million from $811 million during the first quarter last year. Investment banking includes raising money for stock and bond offerings.

Morgan Stanley’s retail brokerage business, Morgan Stanley Smith Barney, helped generate $3.1 billion in revenue during the quarter. Net new assets jumped by $5.8 billion during the first three months of the year.

Customer assets in the brokerage business grew by their largest amount since 2008. That was due in part to the ongoing rally in the stock market.

Morgan Stanley acquired a majority stake in Smith Barney from Citigroup in May. The bank is expected to eventually purchase the remaining stake in Smith Barney from Citigroup when contracts allow for the deal to be completed.

The bank acquired Smith Barney last year as it looked to diversify its operations and rely less on investment banking revenue, which plunged during the credit crisis.

Money set aside for salaries and benefits at Morgan Stanley jumped sharply in the quarter, due in part to the inclusion of Smith Barney brokers. Morgan Stanley set aside $4.4 billion during the quarter, or about 49 percent of its revenue. That compares with $2 billion, or the equivalent to 68 percent of revenue, a year earlier.

Revenue was significantly hurt during the year-ago period as the bank took charges tied to the declining value of commercial real estate investments.

Banks’ compensation practicies were sharply criticized after the credit crisis because employees received big bonuses even as the companies needed billions of dollars in federal bailout money.

Goldman Sachs, Morgan Stanley’s chief competitor, set aside 43 percent of its first-quarter revenue for employee pay.