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Morgan Stanley Posts Strong Profit On Trading Growth (Update 3)

Story updated with new information throughout.

  • Morgan Stanley reported a first-quarter profit of 71 cents a share, beating estimates
  • Revenue came in at $8.9 billion.
  • Analysts expected a profit of 42 cents per share on revenues of $7.31 billion, when excluding when excluding adjustments related to the trading price of the firms debt according to consensus estimates from Thomson Reuters

NEW YORK ( TheStreet) -- It was Morgan Stanley (MS - Get Report), an expected laggard, which provided the biggest beat among the large U.S. investment banks as Wall Street's first quarter earnings season drew to a close on Thursday.

While competitors showed mixed results and mostly falling revenue, the nation's sixth-largest bank by assets reported surprisingly broad based revenue growth that significantly beat analyst expectations. Morgan Stanley reported earnings per share of 71 cents on much stronger than expected trading results that bolstered overall revenue and countered some fears heading into earnings.
Morgan Stanley's chief executive James Gorman

Morgan Stanley's beat came on expectations that its earnings would fall behind Goldman Sachs (GS - Get Report) and JPMorgan Chase (JPM - Get Report), who reported slightly better than expected results earlier in April, buoyed by a strong quarter-over-quarter recovery in their trading and fixed income related divisions. Those concerns proved to be unfounded as revenue at Morgan Stanley's institutional securities unit grew to $5 billion, on far higher than expected fixed income and equity trading revenue.

"[O]ur results highlight that the firm is far more balanced and diverse today than we have been in some time," said the company's CFO Ruth Porat in an analyst call.

The bank's key equity underwriting division also overcame overall market weakness during the first three months of 2012, helping it to beat expectations. On an adjusted basis, Morgan Stanley returned to profitability after posting a fourth quarter loss -- and its underwriting of Facebook's initial public offering looms as a signal of its strengths on Wall Street.

Overall, revenue increased compared with the first quarter of 2011, reflecting rare growth on Wall Street. Excluding debt value adjustments, Morgan Stanley's revenue grew over 15% to $8.9 billion compared with this time last year.

"This quarter is further evidence that Morgan Stanley has rebounded from the financial crisis of 2008 and is in a significantly stronger position," said Morgan Stanley chief executive James Gorman in a statement.

Still, including a $2 billion accounting loss related to the increasing value of the company's debt, Morgan Stanley lost $76 million, or 5 cents a share. That debt adjustment was in-line with expectations that it would subtract roughly 76 cents from its first quarter earnings per share, according to Credit Suisse. Morgan Stanley's trading strength came as a the biggest surprise, but the bank reported other positive including smaller expenses and continued revenue growth in its brokerage operations.

"[W]e are particularly encouraged by continued signs of sales and trading share gains as recent years rebuilding efforts are showing more material payoff, better expense control, continued positive retail client flows and the absence of new negatives," wrote Howard Chen of Credit Suisse in a note to clients.

Shares opened nearly 5% higher in early trading, but fell to a gain of over 2%, closing at $18.07, as broader markets slumped.
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