By Sarah Oliver
Money and Investing Writer
Morgan Stanley, one of the six large United States banks, has surpassed expectations and increased profits in it largest gain to date.
Estimates for the company were $1 billion in revenue and $1.83 billion in equity trading, where the actual results yielded $1.5 billion and $1.9 billion respectively.
The company has seen a 57 percent increase in third-quarter profits, due to multiple factors such as an increase in fixed-income trading and also large cuts throughout the fixed-income and commodities section of the company.
In 2015, CEO James Gorman cut a quarter of this staff last year, a decision that ultimately turned out in the company’s favor. Gorman spoke about his decision and the success of the company this year saying, that what he is pleased about is that he “had a better quarter” and that the company did it with “25 percent less people.”
Equity accounts for 24 percent of Morgan Stanley’s business, a relatively large number. So why would the company choose to move towards trading bonds and other fixed-income? The answer is one that the company’s chief financial officer, Jonathan Pruzan, states in a Bloomberg article, “it was a better trading environment for us, particularly given our skew toward credit.”
Despite the fact that the company increased their fixed income trading, they also saw a rise in equity showing a 5.6 percent increase in revenue. The shift towards increasing fixed-income revenue has helped to increase other aspects of the company as well.
These increases in bond trading allowed net income to rise to $1.6 billion dollars, making shares equal to 81 cents a share a large increase from the previous year.
In 2015 net income totaled $1.02 billion and 48 cents a share. Gorman’s goal of increasing profits while decreasing costs has shown promising results. Even the company’s compensations costs which are its largest expense have decreased in estimated percentage.
According to Bloomberg, compensation costs increased to $4.1 billion up 19 percent from the year before. While this may seem like a large increase and a negative outcome, the rise in compensation costs is due to a large increase in revenue. The ratio of compensation to revenue actually turned out to be slightly less than what was predicted, showing 46 percent instead of the 46.5 percent estimate by financial analysts.
Morgan Stanley showed the largest increase in profits from fixed-income revenue, but the other 5 major banks also showed promising returns.
Goldman Sachs and JP Morgan Chase had fixed-income revenue of 49 percent and 48 percent respectively. Other major banks such as Citigroup and Bank of America have also followed suite and increased bond trading and fixed-income revenue.
Estimates for all of the major banks were surpassed, a good thing for investors and potential investors.
By increasing the company’s fixed-income revenue Morgan Stanley has created a gateway to continuing increased in revenue and profits for the upcoming year. Shares for the company were up by 2.3 percent this year and the return on equity totaled 8.7 percent.
These “long-term strategic goals” as stated by James Gorman, have shown promising results so far and are expected to continue.
A version of this article appeared in the Tuesday, October 25th print edition.
Contact Sarah at