Morgan Stanley emerged from the tumultuous third quarter in better shape than most of its Wall Street rivals.
While other banks reported declines in trading and advisory revenue, Morgan Stanley increased its income from advising companies on deals and trading for its clients. The New York investment bank said Wednesday it earned $2.2 billion in the period, which also included a big accounting gain.
Morgan Stanley's results were in striking contrast to its chief Wall Street rival Goldman Sachs, which reported a $428 million net loss Tuesday. The quarter was marked by heavy turbulence in financial markets, brought on by the debt crisis in Europe and a downgrade of the U.S. government's credit rating.
Morgan Stanley's chief financial officer, Ruth Porat, attributed the firm's relatively strong performance to the bank's strategy of aggressively going after market share even during market uncertainty.
"Surveys from (research firm) Greenwich Associates indicate that we gained more fixed income volume share than any other dealer over the last year," Porat said in an interview.
Morgan Stanley's net income applicable to common shareholders was $1.15 a share on $9.9 billion in revenue. Analysts expected earnings of 30 cents per share, according to FactSet. In the same period a year ago the bank had a loss of $91 million, or 7 cents per share, on revenue of $6.8 billion.
Revenue included an accounting gain of $3.4 billion related to a decrease in the cost of the bank's debt. Because the bank could theoretically buy the debt back at a lower cost, accounting rules require that a gain be recorded. Excluding the gain, Morgan Stanley's revenue was $6.5 billion, far outpacing the $3.59 billion Goldman reported.
Morgan Stanley's stock edged up 1 cent to close at $16.64 Wednesday.
Morgan Stanley's debt and equity underwriting declined 29 percent from last year to $451 million. Third quarter results of investment banking operations at other Wall Street rivals like the Merrill Lynch division of Bank of America Corp. and JPMorgan Chase & Co were also hurt by wild swings in financial markets, which kept many investors away and led companies to put off stock and bond offerings.
The bank's asset management business posted a loss of $117 million. The loss was due to a decline in the value of investments in real estate and merchant banking. Revenue in the division plunged to $215 million from $802 million a year ago. Porat said many of the investments were in Asia, and included stakes in IPOs that the company had underwritten.
Unlike its rivals, Morgan Stanley had an increase in trading revenue as its clients were more active in their stock, debt and derivatives dealings. Investment banking advisory business also increased 11 percent. Each of the trading businesses had accounting gains related to the changing value of the company's debt.
Porat discussed Morgan Stanley's exposure to European debt in a conference call with investors. Worries about that exposure hurt the investment bank's stock in the third quarter. Porat said the bank mostly owned sovereign debt of European countries. She said Morgan Stanley was hedged against losses in the investments, which included $1.5 billion in exposure to France and $5.7 billion to peripheral European countries. Peripheral European countries in the context of the European Union usually include Portugal, Ireland, Italy, Greece and Spain.
The New York bank set aside $3.7 billion for compensation, down 21 percent from last year.
Revenue increased 6 percent to $3.3 billion at its wealth management business, made up mostly of the Morgan Stanley Smith Barney joint venture. The unit attracted net new assets in the quarter of $15.5 billion.