Morgan Stanley (NYSE:MS) performed brilliantly in the third quarter of fiscal 2016 (3QFY16). Its earnings surged sharply in the last quarter due to some key factors. The investment bank was able to post a profit in each of the three quarters of the year. It managed to beat the expectations in the quarter, which was mainly due to a jump in trading revenues.
The bank posted a net income of $1.5 billion (or $0.81 per share) in 3QFY16. It exceeded the analyst expectations of $0.63 per share. On a year-over-year (YoY) basis, its earnings jumped by a massive 62%. Overall sales of the bank increased by $1.1 billion in 3QFY16 to reach $8.9 billion. The bank has been on a major cost-cutting spree but it witnessed an increase in the expenses as it paid more money to its employees in this quarter. It also saw a $500 million decline in its non-compensation expenses.
Following the results, its shares surged by 3.47% in the last three trading days. The bank has been concentrating more on wealth management as earnings from that sector are more stable.
Trading division earning are usually volatile, bus this time it was the trading department which managed to impress its investors. Both, debt and commodity trading jumped in 3QFY16; their numbers tripled compared to same quarter last year. The revenue from the wealth management business surged by just 6% this quarter.
CEO James Gorman said: “While the environment was more challenging for our equity underwriting and asset management businesses, our expense initiatives remain on track. Overall the results reflect steady progress against our long-term strategic goals.”
With all this excitement surrounding Morgan Stanley stock at the moment, it must be noted that the bank struggled to pull up its profitability ratios. Morgan Stanley’s return on equity (ROE) in 3QFY16 increased slightly from 8.3% in the prior quarter to 8.7%. This number is well behind Mr. Gorman’s target of having a ROE of 9-11% by the end of 2017.