Morgan Stanley shares surge more than 3% after profit tops the Street on strong trading and investment banking

Morgan Stanley crushed profit expectations on trading and investment banking results that exceeded analysts’ expectations.

The New York-based company said profit surged 39 percent to $2.44 billion in the second quarter from a year earlier, exceeding the $2 billion estimate of analysts surveyed by Thomson Reuters. Earnings per share of $1.30 exceeded the $1.11 estimate. Revenues climbed 12 percent to $10.6 billion, about $500 million more than analysts expected.

The shares climbed more than 3 percent in pre-market trading in New York.

In the bank’s equities division, the biggest on Wall Street, the firm delivered $2.5 billion in revenue on good performance across all products, especially financing, compared with the $2.29 billion estimate. It’s bond-trading department produced $1.4 billion, compared with the $1.29 billion estimate, on higher results in commodities and credit.

“Morgan Stanley’s performance in sales and trading was particularly impressive, especially compared to rival Goldman Sachs,” Octavio Marenzi, head of capital markets management consultancy Opimas, said in an e-mail. On Tuesday, Goldman reported trading results that essentially matched expectations, prompting questions from analysts on why the firm didn’t outperform like rivals including J.P. Morgan.

Investment banking, which includes deal advisory and stock and bond issuance, generated $1.7 billion in revenue, compared with the $1.54 billion estimate. The business exceeded expectations across deal-making and capital markets units, the bank said.

“We reported robust revenue and earnings growth this quarter with strength across all businesses and geographies,” Chief Executive Officer James Gorman said in a statement. “Our strong global franchise positions us well to continue to grow organically across each of our businesses and to deliver operating leverage.”

Still, revenues in wealth management and investment management were slightly below expectations. Wealth management produced $4.3 billion in revenue, compared to the $4.43 billion estimate, as the company said transactional revenues declined by almost 10 percent thanks to lower fixed income results. Investment management, the smallest of the firm’s three main divisions, generated $691 million in revenue, below the $707.9 million estimate.

Under Gorman, 59, Morgan Stanley has emphasized its wealth-management division, a far steadier business than trading operations. He has also overhauled its fixed-income business, moves that helped the firm eclipse rival Goldman Sachs in market capitalization earlier this year. The executive behind that bond-trading rebound, Ted Pick, was promoted this month to gain oversight of investment-banking activities.

The firm was forced last month to maintain its capital-return plans unchanged from last year after fumbling a key part of its annual stress test. The company said Wednesday that, as expected, it raised its quarterly dividend to 30 cents a share from 25 cents and authorized a $4.7 billion share buyback program, which is consistent with its 2017 plan.

Morgan Stanley shares are down 6.2 percent this year before Wednesday, under-performing the KBW Bank Index, which is almost unchanged.