Morgan Stanley wowed Wall Street Thursday with something that's been elusive at its rivals: a pickup in trading revenues.
As a result, Morgan Stanley reported a much smaller loss than investors were expecting for the second quarter. A 17 percent gain in revenue, to $9.3 billion, was also more than Wall Street anticipated. That sent Morgan Stanley's stock surging more than 11 percent Thursday to $24.20.
Morgan Stanley, which almost didn't survive the financial crisis of 2008, also got to claim a key bragging right: taking in more revenue last quarter than its fiercest rival, Goldman Sachs.
The bank's chief financial officer, Ruth Porat, said in an interview that Morgan Stanley has worked at "deepening" relationships with its clients. That means working on multiple deals with each client at the same time, such as raising debt, advising on mergers and stock trading.
Porat attributed the gains in Morgan Stanley's fixed income business _ one of the strongest areas for the bank last quarter _ to strong leadership. "A strong team and leadership enabled us to get back market share that we shouldn't have lost," Porat said. In January, the bank named Ken deRegt to head the division.
Morgan Stanley did more business in executing trades for clients in bonds, stocks, commodities and other financial markets, even as that business declined at other major Wall Street banks in the second quarter. Morgan Stanley's trading revenues rose 17 percent from the prior quarter to $3.4 billion.
Morgan Stanley and its clients also appeared more willing to take risk than other investment banks. Goldman Sachs reduced a key measure of investment risk last quarter to the lowest level since late 2006. Morgan Stanley's "value at risk," a measure of how much money it could lose in any given day, increased to $145 million, compared with $121 million in the first quarter of 2011 and $139 million in the second quarter of the prior year.
Revenue from Morgan Stanley's bond trading business rose 18 percent from the previous quarter to $2.09 billion. That compares with a 63 percent plunge in fixed-income trading at Goldman Sachs. JPMorgan Chase & Co. and Citigroup Inc. reported declines of 18 percent and 20 percent. Goldman Sachs and others attributed the declines to investors being nervous about global economic issues.
Overall, the bank reported a loss of $558 million after taking a $1.7 billion accounting charge related to converting an investment from a Japanese bank from preferred shares into common stock. Mitsubishi UFJ Financial Group helped rescue Morgan Stanley during the 2008 financial crisis with an investment of $9 billion.
The quarterly loss was equivalent to 38 cents per share, much less than the 61-cent loss analysts were expecting. Revenue of $9.3 billion was also more than analysts expected, according to FactSet.
Compensation expenses for Morgan Stanley employees, including salaries and bonuses, rose 20 percent to $4.7 billion from $3.8 billion in the same quarter last year.