By Liz Hoffman
Morgan Stanley's third-quarter profit rose 3% from a year ago, the last major U.S. bank to skate through a period of global tensions and shifting markets.
The bank's profit of $2.17 billion, or $1.27 a share, on $10.03 billion in revenue, was helped by a one-time tax benefit. It was better than investors were expecting and sent shares up 1.52% on Thursday.
Analysts polled by FactSet had expected a profit of $1.83 billion, or $1.11 a share, on $9.59 billion in revenue. Morgan Stanley picked up 6 cents a share in earnings thanks to lower taxes; accounting for that, profit was down 5% from a year ago.
"We remain cautious today, as trade talks swirl and interest-rate paths continue to be debated," Chief Executive James Gorman said. "But expect us to look beyond the next few months."
Morgan Stanley is the last of the big U.S. banks to report earnings for the third quarter, a stretch in which two Federal Reserve interest-rate cuts and growing global tensions upended the relative calm and easy financial policies that have helped banks thrive in recent years.
The results were mixed: JPMorgan Chase & Co. and Citigroup Inc. sailed through on the backs of their big consumer banks. One-time charges muddied the results at Bank of America Corp. and Wells Fargo & Co. Goldman Sachs Group Inc.'s expensive pivot into Main Street banking ate into profits.
Morgan Stanley's return on equity, a measure of profitability, was 10.7% for the quarter, accounting for the tax benefit, versus a range of 8.5% to 15% at peers.
Mr. Gorman, in the job since 2010, is in the late innings of a multiyear turnaround. He cut costs, shrank the company's trading division and doubled down on wealth management, a steadier business that now accounts for nearly half of Morgan Stanley's revenue.
He has sounded more acquisitive in recent months but must contend with skeptical investors. Morgan Stanley's shares trade below the net value of its assets, which makes it a lousy currency to use in any takeover, particularly in asset management, an area Mr. Gorman has been scouting and where stocks tend to be more expensive.
On Thursday, he escalated a long-running gripe with regulators: that Morgan Stanley is still being treated like the Wall Street problem child it was during the financial crisis.
"One ongoing challenge of our continued pursuit of higher [returns] has been the amount of equity we're required to hold, despite how we've repositioned the firm," he said.
Morgan Stanley's total assets crossed $900 billion at the end of the quarter for the first time since 2008 and executives appear itchy for a sign that regulators will let it keep growing.
The firm already tested the waters in Washington this year by acquiring Solium Capital, a startup that manages stock that corporate employees receive as part of their pay.
"We have the capacity to grow," Chief Financial Officer Jonathan Pruzan said in an interview. "The question is what the Fed is going to tell us and when they're going to tell us."
Solium is intended to funnel new clients into Morgan Stanley's giant wealth-management division, which manages $2.6 trillion. Its 15,500 brokers have pivoted in recent years from plugging stocks and earning trading commissions to charging a flat fee to advise people on how to invest.
Analysts have warned that price wars between discount brokerages could creep into the wealth-management business, as firms such as Charles Schwab Corp. try to recoup lost commissions by edging into advice. Mr. Gorman dismissed those concerns, suggesting that discount firms weren't sophisticated enough to handle the wealthiest clients.
"It's complicated stuff and being wrong absolutely overwhelms a few basis points on the fees," he said. Morgan Stanley is focused on households with more than $10 million to invest, which Mr. Gorman said require more complicated advice on trusts, family foundations and taxes: "That's where the advice fee is very fair," he said.
Revenue from investment banking rose 5% from a year ago as a funk settled over what had been a red-hot run for stock offerings. Equity underwriting fees fell 9%, offset by a rise in revenue from mergers and debt placements. Mr. Pruzan cited a notable decline in initial public offerings, which are on track for their worst year since 2016, according to Refinitiv.
Morgan Stanley's asset-management arm reported 17% higher revenue, though it remains a blip on the firm's bottom line. It took in new money in both stock and debt funds, though market-price declines ate into those flows and assets ticked up just 2% from the end of June.
A 1% drop in stock trading revenue puts Morgan Stanley in the middle of the pack this quarter but strong enough to defend its No. 1 position in that business. In fixed-income trading, revenue was up 21% from a year ago but fees across Wall Street keep falling, validating for now Morgan Stanley's decision to shrink that business.
"Two years I thought we'd hit the low point, then last year was smaller, " Mr. Pruzan said of fixed-income fees industrywide. "The market isn't growing."
Write to Liz Hoffman at firstname.lastname@example.org