Morgan Stanley stole a march on its banking rivals on Thursday, reporting an increase in bond sales and trading that allowed it to beat first-quarter earnings expectations.

The New York-based bank reported net revenues of $8.9bn, excluding a negative $2bn accounting quirk created by a recovery in the price of the bank’s own bonds. That generated net income of $1.4bn, or 71 cents a share, outpacing the 45 cents a share expected by analysts.

“This quarter is further evidence that Morgan Stanley has rebounded from the financial crisis of 2008 and is in a significantly stronger position,” said James Gorman, chairman and chief executive.

Morgan Stanley, like its rival Goldman Sachs, is trying to change the way it does business ahead of new banking regulations by becoming less dependent on volatile trading revenue. The bank is buying retail brokerage Smith Barney from Citigroup to help this shift and strengthen its position in the wealth management market.

But results appeared to suggest Morgan Stanley was winning market share in fixed-income trading – one of the biggest revenue drivers for US banks. Revenue from bonds and commodities jumped 34 per cent from a year ago, Morgan Stanley said, to $2.6bn.

That outstripped the 11 per cent and 19 per cent gains reported at Bank of America and Citigroup. At Goldman Sachs, sales from the fixed income, currencies and commodities unit fell by a fifth in the first three months of the year, surprising some analysts and investors. At JPMorgan they dropped about 2 per cent. Morgan Stanley’s strength in fixed income was “the big surprise of the earnings season,” said Keith Horowitz, banking analyst at Citigroup.

The bank has been hiring fixed-income staff – taking Glenn Hadden, a top bond trader from Goldman Sachs – and rolling out new technology to boost its appeal. It had also focused on capturing more volumes or “flow” from customers’ trading business, said Ruth Porat, chief financial officer.

“It was not surprising that trading was strong versus the fourth quarter of 2011,” said David Trone, JMP Securities banking analyst, referring to the end of last year when markets were hit by the eurozone debt crisis.

But the increase in Morgan Stanley’s fixed income and also equities trading “clearly demonstrates company-specific performance improvement”, he said.

Morgan Stanley shares jumped 1.6 per cent to $17.90 in midday trading in New York, paring an earlier rise to $18.54.

Some analysts questioned whether the strong performance in fixed income reflected more business or simply positioning ahead of the broader rally in the markets for credit products and other securities.

“It is unclear if such moves are driven by greater market share or simply directional bets on markets,” Atlantic Equities analyst Richard Staite said. Stripping out a one-time impact related to monoline insurance also lowers Morgan Stanley’s fixed-income sales gain to about 16 per cent, he noted.

There is a credit rating downgrade from Moody’s still looming over Morgan Stanley and other major banks. If Moody’s carries out its threat to cut the bank’s ratings by as many as three notches, that could eat into Morgan Stanley’s lucrative derivatives business, where it acts as a major counterparty.

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