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Morgan Stanley Profit Up 69% as Traders Redeem Themselves (Update 2)

Updated from 8:11 ET with additional details throughout.

  • Morgan Stanley reports second-quarter profit from continuing operations of $1 billion, or 43 cents a share.
  • Profit up 69% at $1 billion vs. $591 million in the second quarter of 2012.
  • Net revenue comes in at $8.5 billion for the second quarter compared with $6.9 billion a year ago.
  • The consensus estimate among analysts was EPS of 43 cents a share on revenue of $7.89 billion.

NEW YORK ( TheStreet) -- Morgan Stanley (MS - Get Report) profits rose 69% in the second quarter on higher revenue on the back of strong equities trading results and a solid performance in a difficult quarter for fixed income.

Equity sales and trading net revenues of $1.8 billion, up from $1.3 billion a year ago.

"They coined money," said Sanford Bernstein analyst Brad Hintz of the equities results. Hinz said Morgan Stanley and Citigroup (C) were the strongest performers in equities trading in the second quarter among global U.S. investment banks.

Morgan Stanley shares were up 4.14% to $27.64 about an hour before the market opened Thursday.

Bernstein's Hintz was also impressed with Morgan Stanley's fixed income revenues, which, adjusted for an accounting oddity known as debt valuation allowance, were down 24% vs. the previous quarter. The rest of the industry is down about 22% and Goldman Sachs (GS) was also down about 24%, according to Hintz.

"For a firm that does not perform well in fixed income this is pretty good," Hintz said.

Across the company, Morgan Stanley earned $1 billion from continuing operations, or 43 cents per share as revenue rose 29% vs. a year ago to $8.5 billion.

Chairman and CEO James Gorman cited "significant" revenue growth in each of the bank's five main business units compared to a year ago.

"Of particular note, equity sales and trading results were strong across all products and regions, while investment banking delivered top-three rankings in announced and completed M&A, global equity offerings and global IPOs," Gorman stated in a press release.

The EPS calculation included a negative adjustment of approximately $152 million, or 8 cents per diluted share, related to the previously announced purchase of the remaining interest in the Morgan Stanley Smith Barney (MSSB) joint venture from Citigroup.

Results in Morgan Stanley's brokerage division, which Gorman has made a major focus since taking over leadership of the company, were strong. Wealth management margins of 18.5% were the highest since the inception of the joint venture. Nonetheless, they lagged the 28% margins at Bank of America's (BAC) Merrill Lynch unit, Morgan Stanley's major competitor.

Compensation expense of $4.1 billion increased from $3.6 billion a year ago on higher revenue. Non-compensation expenses of $2.6 billion increased from $2.4 billion in the prior year reflecting increased litigation costs and higher volume driven expenses.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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