Morgan Stanley's quarterly earnings beat analysts' expectations by a wide margin on Friday, helped by a big jump in trading revenue, and the bank said it was ready to deliver better returns to shareholders.
The Wall Street bank also said its wealth-management division delivered a 17-per-cent pretax profit margin, meeting an internal target months ahead of schedule.
That business's performance is closely watched by investors because Morgan Stanley Chief Executive James Gorman is staking the future of the bank on wealth management, arguing that more stable returns in the business will help offset volatility from trading and investment banking.
"After a year of significant challenges, Morgan Stanley has reached a pivot point," Mr. Gorman said in a statement. "Our firm is now poised to reach the returns of which it is capable on behalf of our shareholders."
Morgan Stanley is one of several Wall Street banks using layoffs and compensation cuts to help boost its bottom line. The firm paid out 44 per cent of adjusted revenue to employees in its securities and investment banking business last year, down from 53 per cent in 2011, Chief Financial Officer Ruth Porat said in an interview.
Across the entire company, compensation costs fell by $711-million (U.S.), or 4 per cent, in 2012 as Morgan Stanley cut nearly 5,000 employees from its payroll.
Overall, Morgan Stanley reported income from continuing operations of $573-million, or 28 cents per share, compared with a loss of $222-million, or 13 cents per share, in the year-ago period, which included a big one-time charge.
Excluding an accounting charge related to changes in the value of Morgan Stanley's debt, the company earned $894-million, or 45 cents per share, compared with a loss of $349-million, or 20 cents per share, a year earlier.
On that basis, analysts had been expecting, on average, 27 cents per share, according to Thomson Reuters I/B/E/S.
In sales and trading, adjusted revenue more than doubled from a year earlier, to $2-billion from $867-million.
Morgan Stanley is the last big U.S. bank to report earnings this week. Rival Goldman Sachs Inc said on Wednesday it cut compensation costs 11 per cent in the fourth quarter, helping boost returns to shareholders.