Fixed-income trading catapults Morgan Stanley to record highs

NEW YORK Wall Street’s top stock traders got some help from their bond brethren.

Morgan Stanley posted a surprise jump in fixed-income trading, which combined with better-thanexpected equities results helped push revenue above US$11 billion for the first time. First-quarter profit, boosted by corporate tax cuts, also rose to an all-time high.

Chief executive James Gorman has overseen a recovery in his firm’s bond-trading business even as the industry suffered from calm markets that cut demand for fixedincome services. Now, rising rates and political uncertainties offer a chance for the unit, led by Sam Kellie- Smith, to boost revenue and catch up to its stock-trading business, which is the world’s biggest.

“The beat came from almost every revenue line item, but was largely driven by sales and trading,” Chris Kotowski, a bank analyst at Oppenheimer & Co., wrote in a note to clients. He described the bank’s results as “firing on all cylinders.”

Shares of the company, which gained 1.5 per cent this year through Tuesday, advanced 0.04 per cent to US$53.26 in New York. Mitsubishi UFJ Financial Group Inc., Morgan Stanley’s biggest shareholder, said in a separate statement it would sell shares back to the bank to keep its ownership interest below 24.9 per cent.

The bank credited securitized products and foreign-exchange for driving the fixed-income trading division’s performance.

“Debate around the direction of rates and speed of rates led to more volatility,” chief financial officer Jonathan Pruzan.

Morgan Stanley experienced “a little bit of a slowdown in the second half of the quarter as some of the dialogue shifted to geopolitical risk and trade wars and the domestic political headlines,” Pruzan said. “Seasonality is going to play a part here, so I don’t think all these results are sustainable across all of the quarters.”

Morgan Stanley used electronic systems to grab the stock-trading business of quantitative hedge funds that have increased assets in recent years. Morgan Stanley President Colm Kelleher said he wants to do the same for bonds.

Investment-banking revenue climbed seven per cent to US$1.51 billion, better than the 1.4-percent slump that analysts expected, according to estimates compiled by Bloomberg.