Morgan Stanley posts most profitable quarter since crisis

Morgan Stanley reported its most profitable quarter since the financial crisis, with a jump in revenues from trading helping the bank record its first double-digit return on equity in more than seven years.

Net income rose 59 per cent to $2.4bn on revenues that rose 10 per cent to $9.9bn. Earnings per share were $1.18.

Analysts had expected net income of $1.6bn and earnings per share of $0.78.

"This was our strongest quarter in many years with improved performance across most areas of the firm," said James Gorman, chief executive. "It reflects our ongoing strategy to build platforms for growth while maintaining a prudent risk profile and disciplined expense management."

Last quarter Mr Gorman pledged to lift Morgan Stanley's return on equity to 10 per cent, from 8.1 per cent in 2014, although he did not give a timeframe.

ROE for the quarter was 14.1 per cent, or 10.1 per cent, excluding a tax benefit and a distortive accounting treatment that forces banks to take profits or losses based on changes to the value of their debt.

The last time Morgan Stanley recorded a double-digit ROE was the third quarter of 2007. It then struggled in the financial crisis, widely believed to be the next investment bank in line to fail after Lehman Brothers.

Mr Gorman has reshaped the blue-blooded investment bank, shrinking capital intensive divisions such as fixed income trading and increasing the size of the wealth management division, which produces steadier income.

The strategy has been applauded by investors, with Morgan Stanley's stock and credit spreads outperforming those of Goldman Sachs in the past two years.

However, Goldman enjoyed a strong first quarter, which executives celebrated as evidence that their strategy of sticking with tradings businesses - despite regulations which challenge their profitability - was proving correct.

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