8:23 a.m. | Updated
Morgan Stanley reported adjusted earnings for the fourth quarter on Friday that beat analyst estimates, driven by gains in wealth management and stock trading.
Including charges, the firm had a fourth-quarter profit of $481 million, or 25 cents a share. That compares with a per-share loss of 15 cents in the year-ago period. The results seem to please investors. Morgan Stanley shares are up 6.4 percent in premarket trading.
The results, however, were affected by one-time accounting charges related to the firm’s credit spreads. Excluding those charges, the firm had a profit of 45 cents a share. That handily beat the estimates of analysts polled by Thomson Reuters, which had estimated a profit of 27 cents a share.
Morgan Stanley’s revenue came in at $7 billion in the fourth quarter, up 23 percent from the year-ago period.
Morgan Stanley’s chief executive, James P. Gorman, said in a release that Morgan Stanley had reached a “pivot point” in its turnaround strategy, which has been underway since the financial crisis when the firm’s operations were badly damaged. “Our firm is now poised to reach the returns of which it is capable on behalf of our shareholders,” he said.
The results are good news for Mr. Gorman, who has been working since the financial crisis to retool Morgan Stanley by shifting its focus away from potentially riskier businesses like trading and into steadier less capital-intensive areas like wealth management. While he has notched some successes, the company still faces challenges.
Notably, the firm has reduced the size of its fixed department in the wake of ratings downgrades and new regulatory requirements, both of which have forced it to hold more capital against riskier trading activities, reducing profitability. This month, it laid off 1,600 employees, many of them in fixed income.
Excluding the debt charge, institutional securities, which included fixed income and banking, had revenue of $3.5 billion, compared with $1.9 billion in the same quarter in 2011. The fixed income sales and trading unit reported adjusted revenue of $811 million, compared with a loss of $493 million in the year-ago period.
This week Morgan Stanley and other Wall Street firms notified employees of their 2012 compensation. Morgan Stanley set aside $15.62 billion for compensation, or about 60 percent of its 2012 revenue. This compares with 2011, when just 51 percent of revenue was allotted for compensation and benefits.
The high ratio of compensation as a percentage of revenue could raise eyebrows on Wall Street. In 2010, Mr. Gorman said that Morgan Stanley’s compensation rate of 62 percent that year was a “historic high” that no one on his management team “will ever see again.” He indicated that the rate should be no higher than 50 percent.
Earlier this week, Goldman Sachs posted profit of $5.60 a share, which outpaced analyst expectations. Citigroup, Wells Fargo and JPMorgan Chase have also recently reported stronger year-over-year earnings.
DealBook: Morgan Stanley's $481 Million 4th-Quarter Profit Beats Estimates
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DealBook: Morgan Stanley's $481 Million 4th-Quarter Profit Beats Estimates
