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Morgan Stanley’s profits jump 25% on Wall Street trading fortune

Morgan Stanley ended Wall Street’s earnings season on a high, with booming markets leading to a 25% increase in third-quarter earnings and fueling the bank’s demands to resume stock buybacks.

The bank posted net income of $ 2.7 billion for the quarter, far better than the $ 2 billion forecast by analysts interviewed by Refinitiv. Revenue of $ 11.66 billion increased 16% year-over-year and exceeded the $ 10.6 billion forecast by analysts.

“Our shareholders who own the company have the right to generate a decent return on the capital they have invested in the company,”

; Morgan Stanley chief executive James Gorman told analysts, criticizing the Federal Reserve’s ban on major US banks. to buy back their shares until at least the end of the year.

“There is absolutely no reason. . . because we shouldn’t distribute capital, except for now it’s the right thing for the wider community to do, “Gorman added. He told investors he hoped to receive permission to resume buybacks in the first quarter and was ready to repay further 100% quarterly earnings once that happens.

Trading was best for the third quarter and helped drive Morgan Stanley to the second highest quarterly revenue in history, mirroring the results of rival Goldman Sachs, which nearly doubled its third quarter earnings.

Heatmap of US banking results, Q3 2020

At Morgan Stanley, fixed income trading revenues increased 35% year-over-year to $ 1.9 billion, less than Goldman’s 49% but better than the rest of Wall Street.

Morgan Stanley stock trading revenue increased 14% to $ 2.3 billion, while investment banking revenue increased 11% to $ 1.7 billion. This was driven by a nearly 120% increase in fees for signing up for initial public offerings, which offset a 35% year-over-year decline in advisory revenues.

“I would say it was an extraordinarily constructive and positive environment,” CFO Jon Pruzan told the Financial Times, referring to a quarter in which stocks rallied as the Federal Reserve and the US government pumped a massive liquidity in the markets.

“What we need are open and functioning markets, which we clearly have, and we need customers who are involved, which we clearly have,” he added.

Mr. Pruzan said conditions in the fourth quarter were “very constructive” in commercial markets and that the merger and acquisition pipeline was improving, echoing Goldman’s comments on Wednesday.

Strong market conditions also helped generate $ 200 million in earnings on Morgan Stanley’s investment and loan portfolio.

Glenn Schorr, an analyst at Evercore ISI, wrote in a note to clients: “While this awesome wallpaper can’t last forever, it’s still pretty good and [Morgan Stanley] continues to perform very well its rather balanced, more paid and constantly growing franchises. ”

The third quarter was an important one for Morgan Stanley’s investment management division, which will soon be powered by the $ 7 billion acquisition of Eaton Vance announced last week. The division increased revenues 38% to $ 1 billion, recording net inflows and also benefiting from rising asset values ​​during a strong market rally.

Morgan Stanley’s wealth management unit, which has just begun integrating ETrade online brokerage, increased revenues by 7% to $ 4.66 billion. Shares of Morgan Stanley rose slightly in early trading in New York.

The earnings close a season of mixed earnings. Earnings at Bank of America, Citigroup, JPMorgan Chase and Wells Fargo rebounded strongly as the massive loan loss expenses of the start of the year waned, but investors worry about the long-term drag of low interest rates on profitability . Morgan Stanley and Goldman Sachs are less vulnerable to this because they have much smaller loan books.

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