Morgan Stanley posted stronger-than-expected quarterly revenue and retail brokerage profit jumped, validating the bank's strategy of reducing its reliance on the investment banking businesses that have suffered across Wall Street.
The bank's shares were up 0.7 per cent in morning trading as investors shrugged off the fact that fourth-quarter profit fell short of forecasts, focusing instead on strong results in groups like retail brokerage and wealth management.
In 2009, Morgan Stanley acquired a controlling stake in Citigroup's retail brokerage business, now a joint venture known as Morgan Stanley Smith Barney. The combined businesses generated about 20 per cent of Morgan Stanley's profit in the latest quarter.
Asset management, a business that was long a weak performer for Morgan Stanley, has turned around under Greg Fleming, who joined the bank in February 2010. The unit's revenue rose 68 per cent from a year earlier, and the business generated about 20 per cent of the bank's income.
Morgan Stanley's diversification stands in contrast to rival Goldman Sachs Group Inc, which generated about 82 per cent of its fourth-quarter revenue from investment banking.
Still, excluding $668-million (U.S.) of pretax gains from the sale of its investment in China International Capital Corp, Morgan Stanley's earnings missed analysts' expectations.
The second-largest U.S. investment bank said fourth-quarter shareholder profit was $600-million, or 41 cents a share, compared with $376-million, or 29 cents a share, a year earlier.
Adjusted earnings were 26 cents a share, below analysts' average forecast of 35 cents, according to Thomson Reuters I/B/E/S.
Revenue was $7.81-billion, topping the average forecast of $7.35-billion.
The bank's shares were up 20 cents to $27.95 on the New York Stock Exchange.
"The Morgan Stanley results are a mixed bag. There's some good news, but trading revenue is down. That's been a problem across Wall Street," said David Carter, chief investment officer at Lenox Advisors in New York.
The bank suffered from the same trading malaise that hit JPMorgan Chase & Co, Goldman Sachs Group Inc and Citigroup Inc. Morgan Stanley's trading revenue fell 38 percent, and it lost money in fixed-income trading.
"This market was a tough market," Ruth Porat, chief financial officer, told Reuters in an interview.
The bank is still trying to boost its fixed-income trading business, which is small compared to many of its rivals. The bank earlier this month said Jack DiMaio, global head of interest-rate, currency and commodity trading, was leaving, and that chief risk officer Kenneth deRegt was becoming global head of fixed income sales and trading.
Morgan Stanley hopes trading volumes will improve as the global economy improves, and hopes it can boost market share, Ms. Porat said.
Morgan Stanley Smith Barney generated income for Morgan Stanley of $166-million in the quarter, up from $29-million a year earlier. Morgan Stanley holds a 51 per cent stake in the joint venture.