The company reported a net loss of $94 million compared with profit of $968 million a year earlier. Excluding accounting charges tied to the firms own credit spreads, profit was 71 cents a share, topping the 44-cent average estimate of 17 analysts surveyed by Bloomberg.
Fixed-income trading revenue surged 34%, surpassing the 19% gain at Citigroup and Goldman Sachss drop of more than 15%, excluding accounting adjustments. Morgan Stanley chief executive officer James Gorman, 53, has set a goal of 15% return on equity after lingering pressures from the financial crisis held that measure below 10% for five straight years. First-quarter return on equity was 9.2%.
You had very favorable tailwinds in the fixed-income markets, and so trading revenues are very strong, Charles Peabody, an analyst at Portales Partners in New York, said in an interview on Bloomberg Radio. The question is the sustainability.
Morgan Stanley rose 5.5% in early trading to $18.67. The shares fell 44% in 2011, the biggest decline since 2008, and are 40% below where they traded when Gorman took over at the beginning of 2010.
This quarter is further evidence that Morgan Stanley has rebounded from the financial crisis of 2008, Gorman said in the statement.
The accounting charge is known as a debt valuation adjustment, or DVA. It stems from increases in the value of the companys debt, under the theory it would be more expensive to buy back the securities. Morgan Stanley booked $3.4 billion of gains in the third quarter of last year as its credit spreads widened.
Revenue at Morgan Stanley climbed to $8.91 billion from $7.76 billion a year earlier, excluding accounting adjustments. Book value per share dropped to $30.74 from $31.42 at the end of 2011.
First-quarter revenue from fixed-income sales and trading, which is run by Ken deRegt along with commodity trading co-heads Colin Bryce and Simon Greenshields, was $2.59 billion, excluding DVA. That topped estimates of $2.02 billion from Fiona Swaffield, an analyst at RBC Capital Markets, and $1.85 billion from Citigroups Keith Horowitz.