Morgan Stanley (MS - Get Report) said second-quarter profit rose 38% from a year earlier as the Wall Street firm posted the fastest growth in trading revenue among the largest U.S. banks, while President Donald Trump's tax cuts fattened the bottom line.
Net income rose to $2.47 billion, the New York-based company said Wednesday, July 18, in a statement. Earnings per share were $1.30, beating the average analyst estimate of $1.11 in a FactSet survey.
Like rival U.S. banks, Morgan Stanley is getting a windfall from Trump's tax cuts in December, which slashed the firm's effective corporate rate in the second quarter to 20.6% from 32% a year earlier. The firm also took gains in its institutional securities division, with a strong performance from trading stocks, commodities and corporate credit.
Overall, trading revenue rose by 18% from a year earlier, slightly more than at Morgan Stanley's chief Wall Street rival, Goldman Sachs Group Inc. (GS - Get Report) . Morgan Stanley also retained its position as the top stock-trading firm, with $5.03 billion of first-half revenue from that business vs. $4.2 billion for No. 2 Goldman Sachs.
"The second-quarter performance reflected active markets and healthy client engagement," CEO James Gorman said in the statement.
The company's stock price popped after the report, rising 2.9% in New York trading on Wednesday.
Gorman has led a turnaround at Morgan Stanley after signs in recent years of deterioration in its bond, commodities and currency trading unit. Ted Pick, a lieutenant who led Morgan Stanley's stock-trading unit to the top rank in the industry, stabilized the bond unit and was rewarded recently with a promotion to run the entire investment-banking and trading operation
"Morgan Stanley showed strong results as the transformation hits high gear," Dave Hendler, principal at the research firm Montebello Advisors, wrote in a note to clients.
Fixed-income trading revenue rose by 12% to $1.4 billion, while stock-trading revenue rose 15% to $2.5 billion, "reflecting strong performance across all products, particularly in our financing business."
In the second quarter, the five biggest U.S. Wall Street firms posted an average 10% growth in total trading revenue from a year earlier. Morgan Stanley's 18% leap outpaced Goldman's 17% increase and JPMorgan Chase & Co.'s (JPM - Get Report) 12% clip. The growth rate was 6.4% at Bank of America Corp. (BAC - Get Report) , while Citigroup Inc. (C - Get Report) recorded a decline of 0.5%.
For the first half, Goldman had the most growth in total trading revenue at 24%, but that was partly because the firm had such an abysmal performance in 2017. Morgan Stanley's total trading-revenue grew 22% in the first half, followed by 14% at JPMorgan, 6% at Bank of America and 1.1% at Citigroup.