Morgan Stanley easily tops estimates

By David Ellis, staff writer


NEW YORK (CNNMoney.com) -- Morgan Stanley said it swung to a $1.8 billion profit in the first quarter Wednesday, as strong trading revenues boosted the Wall Street firm's latest results.

The New York City-based investment bank said it earned $1.03 a share during the quarter. Including earnings from discontinued operations, Morgan Stanley posted a profit of $1.4 billion, or 99 cents a share during the quarter. A year ago, Morgan Stanley lost $578 million, or 57 cents a share on that basis.

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Shares of the firm have ridden the bank stock rally over the past year, as investor confidence has returned to the sector.

The results were far better than what analysts were anticipating. Expectations were for the company to report a profit -- including discontinued operations -- of $938 million, or 57 cents a share, according to Thomson Reuters.

Morgan Stanley CEO James Gorman, who succeeded current chairman John Mack as CEO at the start of the year, praised the firm's efforts, particularly that of its growing sales and trading division.

Revenue from the company's debt and currency trading business in particular, more than doubled from a year ago to $2.7 billion in the quarter.

Profits were higher across all three of the company's divisions -- its securities business, long-suffering asset management unit and wealth management division.

The latter unit grew dramatically after announcing plans last year to merge with Citigroup's Smith Barney business. Client assets grew, while expenses showed signs of moderating from the previous quarter.

"This may be the beginning of the savings that were first promised when it integrated with Citi's business," said Brad Hintz, senior analyst at Bernstein Research.

Ruth Porat, Morgan Stanley's chief financial officer, attributed at least part of the company's results to improvement in the economy, but echoed comments by Gorman, saying the firm still had "more work to do."

Morgan's investment advisory business has been sluggish as of late due to weakened dealmaking activity. At the same time, real estate funds operated by the company have endured a series of bruising losses on commercial loans recently.

Morgan Stanley's results however, may signal the firm's return to consistent profitability. Last year's performance was uneven, with the company reporting a net loss of $907 million for fiscal year 2009.

All of the nation's top banks have come roaring back in the latest quarter, not only turning a profit, but also blowing analysts' estimates out of the water.

Citigroup (C, Fortune 500), which was among the hardest hit banks during the credit crisis, reported a first-quarter profit of $4.4 billion earlier this week, while California-based lender Wells Fargo (WFC, Fortune 500) also scored Wednesday as it reported a first-quarter profit of $2.5 billion. Both banks beat Wall Street's earnings estimates.

Goldman Sachs (GS, Fortune 500) also recorded an impressive $3.5 billion in profits Tuesday, even as its results were overshadowed by the SEC's fraud case against the investment bank.

Porat disclosed to analysts Wednesday that Morgan Stanley was not facing any potential federal legal action related to mortgage securities it helped create.

Morgan Stanley (MS, Fortune 500) shares rose nearly 6% in afternoon trading on the news.  To top of page

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