Morgan Stanley swings to profit on wealth arm

 
Tim Wallace
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US INVESTMENT bank Morgan Stanley swung back to profit in the first quarter after its new focus on wealth management services began to pay off, its financial results showed yesterday.

Profits for the quarter hit $958m (£626m), up from a loss of $119m in the same period of 2012. Excluding movements in the value of the bank’s debt, earnings hit $1.2bn.

Cost control helped as compensation expenses fell from $4.4bn to $4.2bn, but increasing revenues were the biggest driver of the improvement. Net revenues hit $8.2bn, up 18.8 per cent on the $6.9bn in the same period of 2012.

The banks wealth management business saw pre-tax profits shoot up 48.1 per cent to $597m on the back of a six per cent rise in revenues which hit $3.5bn in the quarter.

The institutional securities arm swung back to a pre-tax profit of $830m from a loss of $329m in the same period of 2012.

However revenues across many activities fell. Fixed income and commodities revenues dropped 42 per cent to $2.6bn, equities revenue fell 20 per cent to $1.6bn, and advisory revenues fell 19.8 per cent to $251m.

Analysts blamed the fall in these areas for the 3.87 per cent fall in Morgan Stanley’s shares.

“At one time, banks like Morgan Stanley had gained outsized profit from risky trading businesses,” said Douglas Ciocca from Kavar Capital Partners. “The new business model looks more utility-like than it does big, sexy bank-like. It is a mind shift from the investor perspective.”

Return on equity rose to 6.3 per cent, up from 3.8 per cent in the fourth quarter.