Morgan Stanley (NYSE:MS) closed Thursday up about 1 percent at $28.93 per share, and continued to climb higher in morning trading on Friday after reporting strong third-quarter financial results. Net revenues climbed 50 percent on the year to $7.9 billion, beating the mean analyst estimate of $7.7 billion. Earnings increased 10 percent on the year to 45 cents per common diluted share, beating the mean analyst estimate of 40 cents per share.
Morgan Stanley’s strong third-quarter revenue was primarily driven by growth in its Institutional Securities segment. Revenue in the segment grew 149 percent on the quarter to about $3.7 billion, accounting for the lion’s share of the bank’s top line (about 46 percent). Revenue within the wealth management segment, currently the bank’s second-largest cash cow accounting for about 44 percent of revenue, grew just 8 percent, although the division has been highlighted as a cornerstone of the bank’s success because of its strong earnings.
Pretax income in the wealth management division grew 170 percent on the year in the third quarter to $668 million, or about 50 percent of consolidated income. This compares against institutional securities, which pulled in more revenue but less income — just $371 million in the third quarter, or about 28 percent of consolidated income.
“Our results point to the increased consistency, strength and balance we are deriving from our business model,” commented Chairman and CEO James Gorman. “Our strategy to combine a world class investment bank with the stability of the largest U.S. wealth management franchise and strong investment management is enabling us to deliver exceptional advice and execution for our clients as well as stronger returns for our shareholders.”
Revenue in the firm’s investment management division increased 31 percent on the year to $828 million, while pretax income increased 52 percent to $300 million.
In June, Morgan Stanley finalized the consolidation of Morgan Stanley Smith Barney, a joint venture with Citigroup (NYSE:C) that has had a somewhat rocky history. The joint corporation was formed in 2009 in the wake of the financial crisis, when Citigroup sold a 51 percent stake in Smith Barney to Morgan Stanley, beginning the long transition of the wealth management business.
Meanwhile, Citigroup reported in its own third-quarter results that it took a pretax loss of $4.7 billion ($2.9 billion after taxes) related to the completion of the sale of the joint venture with Morgan Stanley. Investors knew this was coming about a year ago, when Citigroup disclosed the terms in filing with the Securities and Exchange Commission.
Citigroup reported that revenues excluding special items — such as CVA/DVA, tax benefit, and costs associated with the Morgan Stanley Smith Barney joint venture — fell 5 percent, to $18.22 billion. On a comparable unadjusted basis, Citigroup revenues of $17.9 billion were up 30 percent on the year, a result of large one-time items in the year-ago period.
The firm reported adjusted net income of $3.26 billion, or $1 per share, which compares against net income of $468 million, or 15 cents per share, in the year-ago period.