Morgan Stanley’s profits message

The bank benefited from a $3.4bn (£2.2bn) accounting gain, but its underlying businesses looked strong enough for investors to send its shares up.

“Morgan Stanley has proved it can definitely get in there with the heavy hitters,” said Shannon Stemm, financial services analyst for Edward Jones.

The third quarter was tough on Wall Street as the European debt crisis threw markets into turmoil, cut into securities issuance, and slowed down mergers.

But Morgan Stanley managed to post higher stock trading revenue, excluding accounting gains, even as JPMorgan Chase & Co posted a 15 per cent decline.

The European debt crisis weighed heavily on Morgan Stanley’s debt during the quarter as investors fretted about the bank’s exposure to France and other euro zone countries. But the bank said yesterday that its exposure to troubled countries was limited.

“When you look at credit spreads and it’s inconsistent with the strength we’re seeing in our business... of course it’s frustrating,” chief financial officer Ruth Porat said.

The weakness in the bank’s debt allowed Morgan Stanley to take the $3.4bn accounting gain. Most of its rivals recorded similar gains in the quarter.

Morgan Stanley posted third-quarter earnings of $2.15bn, or $1.15 per share, compared with a loss of 7 cents per share a year earlier.