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Morgan Stanley says it has had a great third quarter as Wall Street's winning week rolls on

Billy Bambrough
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Morgan Stanley chief executive James Gorman has a lot to be smiling about today
Morgan Stanley chief executive James Gorman has a lot to be smiling about today (Source: Getty)

Morgan Stanley has extended the Wall Street winning streak, handily beating expectations in the third quarter and pulling in a profit rise of 62 per cent year-on-year.

Alongside its big banking peers, it has benefited from a trading rebound in recent months.

The numbers

The firm reported diluted earnings per share of $0.81 on revenue of $8.91bn (£7.25bn), ahead of Bloomberg analyst expectations of adjusted earnings per share of $0.63 on revenue of $8.14bn.

In the same period last year revenue came in at $7.77bn.

The New York-based firm reported a profit of $1.6bn, or 81 cents a share. That compares with the $1.02bn, or 48 cents a share, it reported in the same period last year.

Read more: Morgan Stanley and Blackrock presidents warn Brexit will shrink London's financial crown

Breaking down the bank's numbers, the wealth management division had a record quarter with revenues of $3.88bn, up from $3.64bn in the same quarter last year and $3.81bn in the second quarter.

Total trading revenues came in at $3.17bn, against an expected $2.82bn. This included net losses of $192m, compared with losses of $65m a year ago due to lower corporate loan hedging activity.

Fixed income, currency, and commodities revenues were $1.48bn, beating a predicted $1.01bn. This was up from $583m in the same quarter a year-ago, thanks to the credit and rates businesses which saw improved market conditions.

Equity revenue came in at $1.88bn, up from $1.87bn a year ago due to higher results in derivatives and cash equities.

Investment banking revenues were $1.1bn, down from $1.18bn in the same quarter a year ago.

Why it's interesting

After sluggish trading activity and losses in its Asia private-equity arm last year resulted in a shocking third quarter for Morgan Stanley, this will be taken by the market as a good return to form.

Morgan Stanley shares have outperformed its biggest peers since mid-summer, up some 24 per cent since the beginning of July, and are roughly flat on the year. Shares have been sent more than one per cent higher in the pre-market today.

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Read more: Goldman glitters as it beats analyst expectations

Last month the bank warned over the effects of the UK's vote to quit the European Union in June and analysts have been watching bank earnings closely for the effects of the Brexit vote in particular and market volatility in general.

Though it was feared the referendum result could destabilise the financial system, thus far effects have mostly been reserved for the not-so-great British pound.

What the company said

James Gorman, Morgan Stanley chairman and chief executive, is likely walking with a spring in his step this morning and patting himself on the back for guiding the bank through "a challenging environment".

He said in a statement released alongside the bank's latest numbers:

“This quarter we saw record revenues in wealth management and a strong performance in our sales and trading business.

While the environment was more challenging for our equity underwriting and asset management businesses, our expense initiatives remain on track. Overall the results reflect steady progress against our long term strategic goals.

In short

Morgan Stanley has faced rising expectations, as its rivals all pulled down healthy earnings this week, though it has held its own, recording a strong rebound after last year's difficult third quarter.

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