Morgan Stanley outperforms rivals with better profit

Jan 19 (Reuters) – Morgan Stanley (MS.N) reported fourth-quarter profit that beat market expectations, outpacing rivals as its focus on advising high-net-worth clients paid off, pushing its shares higher up 3.7% on Wednesday.

The Wall Street investment bank also benefited from a boom in global transactions and spending restraint at a time when its peers had been hampered by rising wages and technology costs.

Full-year earnings and revenue were a record for the bank, which advised on some of the world’s biggest mergers during the year. Net income jumped 37% to $15 billion and revenue jumped 23% to nearly $60 billion.

The bank also raised its long-term target for return on tangible equity (ROTCE), a key metric that measures how well a bank uses shareholders’ money to generate profits. He is aiming for a ROTCE of at least 20%, up from 17% previously.

“We are increasing our ROTCE target to reflect the earnings power we see in our business model,” Chief Executive James Gorman told analysts on a conference call.

Since taking office a decade ago, the 63-year-old CEO has transformed Morgan Stanley from a Wall Street firm heavily weighted in losing business activities into a more balanced bank. He was the driving force behind Morgan Stanley’s decision to acquire Smith Barney and made wealth management a cornerstone of its revenue stabilization plan.

The 2020 acquisitions of E*Trade and Eaton Vance for a combined $20 billion doubled that strategy, differentiating Morgan Stanley’s focus from its peers.

The bank’s wealth management unit reported a 10% increase in revenue to $6.25 billion, generating record annual profit.

In the quarter ended Dec. 31, earnings were $3.59 billion, or $2.01 per share, and beat market expectations of $1.93 per share.

Shares of Morgan Stanley rose 2.5% in morning trading.

Its results capped a mixed earnings season for the country’s biggest banks which benefited from the wave of mergers and acquisitions but were held back by weak trade and rising spending, which inflated as they were spending heavily to retain key personnel in a race for talent.

Morgan Stanley’s traditional rival Goldman Sachs (GS.N) on Tuesday reported fourth-quarter earnings that beat expectations, sending its shares down as much as 8%. JPMorgan (JPM.N) beat earnings expectations last Friday but saw its shares fall 6% due to spending concerns. Read more

Unlike some competitors, Morgan Stanley has benefited from integrating technology through its acquisitions rather than having to build it from scratch, Gorman told analysts.

It has also tied pay to performance in its wealth management and investment banking divisions, Gorman said.

Compensation expense remained roughly flat in the quarter compared to a year ago.

HEALTHY CHANNELING

Morgan Stanley’s investment bank turned in a strong performance and chief financial officer Sharon Yeshaya said its pipeline remains “healthy” through 2022.

“CEO confidence remains elevated and markets remain open and constructive,” she told analysts.

In 2021, Wall Street’s investment banking giants enjoyed a global deal boom. Read more

Morgan Stanley advised 420 deals last year and was ranked third in global investment banking rankings, after bigger rivals Goldman Sachs (GS.N) and JPMorgan Chase (JPM.N), according to data from Dealogic.

Overall revenue from Institutional Securities, which houses Morgan Stanley’s investment banking and trading units, fell slightly to $6.7 billion, largely due to weak trading.

Trading revenues fell 26%. Equity trading revenue rose 13%, but the gains were wiped out by a 31% drop in fixed income trading revenue to $1.23 billion.

Overall revenue reached $14.5 billion from $13.6 billion a year ago.

Reporting by Sohini Podder and Manya Saini in Bengaluru and Matt Scuffham in New York; additional reporting by Mehnaz Yasmin; Written by Anirban Sen and Matt Scuffham; Editing by Arun Koyyur and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.