NEW YORK, NY - MAY 06:  CEO of Morgan Stanley James Gorman speaks at New York Ideas on May 6, 2014 in New York City. New York Ideas is a conference that brings together leaders from a variety of industries, hosted by The Atlantic, The Aspen Institute and New-York Historical Society.  (Photo by Andrew Burton/Getty Images)
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Against a dramatic backdrop of roiling markets, the five big Wall Street banks have reported generally positive earnings this week, with Morgan Stanley ending on Friday with the best-received results.

Under James Gorman, chief executive since 2009, Morgan Stanley has increased the size of its wealth management operation while shrinking fixed income trading as part of an attempt to boost a return on equity which lags behind the industry.

The bank is edging closer to its target of a double-digit return on equity, producing a core ROE of 7.6 per cent in the quarter, up from 7.1 per cent in the second quarter and 5.8 per cent last year. But its returns are still behind those of Goldman Sachs and JPMorgan Chase.

“We’re on a march toward 10 per cent,” said Ruth Porat, chief financial officer.

Shareholders have given Mr Gorman time to deliver on his pledge to produce returns that exceed the company’s cost of capital. The stock has outperformed in the past 12 months, up more than 15 per cent, and was also the best performer during the week of earnings.

Wealth management, where Morgan Stanley competes with Merrill Lynch, saw revenues rise 9 per cent to $3.8bn.

Net income rose 93 per cent compared with the same period last year to $1.7bn. Stripping out a one-time tax benefit and an accounting gain from changes in the company’s credit spreads, Morgan Stanley made $0.65 a share. Analysts had expected EPS of $0.54 and net income of $1.1bn.

The bank’s shares rose 2.5 per cent to $33.35.

Results from the big banks have been marked by signs of life in fixed income trading, which used to be the main profit engine of the industry but had declined under regulatory pressure and calm markets.

Morgan Stanley has diverged from arch-rival Goldman Sachs, betting that selling stocks and bonds to ordinary Americans was a more stable and potentially more profitable business than trading.

But the shrunken fixed income division outperformed in the quarter, with a 19 per cent rise in revenues to $997m, helped by heavy volumes of foreign exchange trading as the dollar strengthened against other currencies.

Ruth Porat, chief financial officer of Morgan Stanley
Ruth Porat © Bloomberg

That makes it still the smallest bond trading house of the big banks but a better year-on-year increase than anyone apart from Goldman.

On an underlying basis, Goldman’s revenues in fixed income trading were up 53 per cent, Bank of America up 11 per cent, Citigroup up 5 per cent and JPMorgan Chase up 2 per cent.

Ms Porat said Morgan Stanley’s view was still that the market had endured a big “structural change”; Goldman Sachs executives feel increasingly vindicated in their view that the declines are largely cyclical.

“We feel very good about how we’ve reshaped and resized our business,” said Ms Porat.

Generally positive results this week have been overshadowed by market turmoil and fears about the global economy fuelling the belief that conditions are too weak for the Federal Reserve to raise interest rates, a long-expected boost to bank margins.

“What we’ve often seen is that you have ongoing strength in markets, then volatility . . . then a reset and it resumes,” said Ms Porat. “One of the key questions is will the strength in the US provide the support for the market to resume?”

With concern about the economic and interest rate outlook paramount, Bank of New York Mellon said on Friday it had begun charging clients for depositing euros.

About 15 per cent of BNY Mellon’s deposits are in euros and the custodian bank began charging clients to hold such deposits at the start of this month.

“What we are doing is essentially passing through the 20 basis point fee that we are absorbing from the European Central Bank,” Brian Shea, BNYMellon vice-chairman, said.

Custodian banks such as BNY Mellon have been hit by more than five years of ultra-low interest rates as their bread-and-butter business of safeguarding trillions of dollars worth of client assets has become less profitable.

On Friday, BNY Mellon said that its third-quarter profits rose 11 per cent compared with the same period a year earlier to $1.07bn, or 93 cents a share.

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