Morgan Stanley, Goldman Sachs earnings surpass expectations

Last Updated Oct 17, 2017 8:50 AM EDT

Morgan Stanley and Goldman Sachs topped analyst expectations for the third quarter, bolstered by wealth management and investment banking revenue, respectively.

Investment bank Morgan Stanley (MS) said Tuesday that its third-quarter profit rose 12 percent, as the firm's wealth management arm was able to earn more money despite a slow summer in the markets. Goldman Sachs' third-quarter profits fell 3 percent from a year earlier, as the trading desks at Wall Street's biggest investment bank were weighed down by a slow summer that also affected most of its competition. The results still beat analysts' forecasts, however.

Morgan Stanley said it earned $1.78 billion, or 93 cents a share, compared with $1.6 billion, or 81 cents per share, in the same period a year earlier. The results beat analysts' expectations of 81 cents per share, according to FactSet.

Over the last several years, Morgan Stanley's management has been pushing the firm away from trading and into more steady forms of business, most notably wealth management. That bet paid off this quarter.

Morgan Stanley's wealth management arm drove most of the profit gain in the quarter, reporting a 9 percent rise in revenue. The firm's assets under management grew as well as fee income from advising clients.

Like its competitors, Morgan's trading desks were hampered by a slow summer. The firm's stock trading revenue was relatively flat, but the firm's bond trading revenue fell 20 percent from a year earlier to $1.2 billion from $1.5 billion. Unlike its competitors, Morgan Stanley's trading operations are weighted more toward stock trading.

Investment banking revenue also increased to $1.3 billion from $1.1 billion. Overall revenue rose 3 percent to $9.2 billion versus $8.91 billion a year earlier, also beating expectations.

At Goldman Sachs (GS), profit slipped to $2.04 billion, or $5.02 a share, compared with a profit of $2.10 billion, or $4.88 a share, in the same period a year earlier. The firm's per-share profit rose because there are fewer Goldman shares outstanding compared with the same period a year ago. Analysts had been looking for Goldman to post a profit of $4.17 a share, according to FactSet.

Goldman's trading desks, which are weighted toward bonds, currencies and commodities, struggled this quarter, as did those at its competitors JPMorgan Chase, Citigroup and Bank of America.

Net revenue in that business was $1.45 billion, down 26 percent from a year earlier. Markets have been abnormally quiet this year, which has hurt investment banks' trading profits since they benefit when markets are more active.

Despite the struggling trading operation, Goldman's investment banking business had an especially good quarter, reporting a 17 percent rise in revenue. Revenue from underwriting and companies turning to Goldman's investment bankers for advice both increased during the quarter.

Goldman's return on common equity, a measurement of a bank's profitability by showing how well it performs with the assets on its books, was 10.9 percent in the quarter. Investment banks like Goldman aim for that measurement to be above 10 percent.

In a statement, Goldman Sachs CEO Lloyd Blankfein called the firm's overall performance so far this year "solid."

Company-wide revenue was $8.33 billion in the quarter, compared with $8.17 billion a year earlier. Analysts were looking for Goldman to have revenue of $7.53 billion.

Goldman's stock fell $2.17, or 0.9 percent, to $240.24 in early morning trading. Morgan Stanley shares rose 28 cents, or less than 1 percent, to $49.24.