By Olivia Oran and Sweta Singh
Oct 19 (Reuters) - Morgan Stanley reported a better-than-expected profit on Wednesday, boosted by a surge in bond trading that helped all Wall Street banks last quarter.
Morgan Stanley's gains were especially notable. Its adjusted bond-trading revenue more than doubled, hitting Chief Executive James Gorman's revenue target for that business for the second quarter in a row.
The bank has struggled for years to improve in bond trading, which has volatile revenue and tough capital requirements to meet. Earlier this year, Morgan Stanley restructured the unit, cutting 25 percent of staff and appointing new leadership.
In an interview, Chief Financial Officer Jonathan Pruzan said the bank is on the right track, though it may be too early to claim victory.
"The success we've had in the last quarter or two has boosted morale and confidence of the team," he said. "But these things take time and until we can do it for years as opposed to quarters, we're not going to declare success."
Though it is still early in the fourth quarter, Pruzan said the trading environment has so far been similar to the end of September.
Overall, Morgan Stanley's earnings applicable to common shareholders rose 62 percent, to $1.5 billion from $939 million in the same quarter a year earlier. Earnings per share rose to 81 cents from 48 cents, helped by stock buybacks.
Analysts had estimated earnings of 63 cents per share, according to Thomson Reuters I/B/E/S.
Revenue rose 15 percent to $8.9 billion. Analysts had expected revenue of $8.2 billion. Non-interest expenses rose just 4 percent, reflecting a cost-cutting program that Morgan Stanley hopes will shave $1 billion from annual expenses by next year.
Morgan Stanley's shares rose 0.7 percent to $32.55 in premarket trading.
Strong Quarter
Morgan Stanley wraps up a surprisingly strong quarter for big U.S. banks. Goldman Sachs Group Inc, Morgan Stanley's closest rival, reported a better-than-expected 58 percent rise in third-quarter profit on Tuesday.
Bond trading was strong across Wall Street, driven by Britain's surprise vote to leave the European Union and bouts of anxiety about monetary policy around the world.
Morgan Stanley's bond-trading revenue rose to $1.5 billion in the third quarter from $583 million in the year-ago period, when stripping out accounting gains and losses related to the value of its own bonds.
Despite that rebound, Morgan Stanley posted an 8.7-percent return on equity, which is less than Gorman's stated target of 9 percent to 11 percent by the end of 2017.
Equities sales and trading revenue, a traditional bright spot for the bank, edged up just 1 percent to $1.9 billion.
Revenue from investment banking fell about 7 percent to $1.23 billion, due to weaker M&A fees and capital markets activity.
Morgan Stanley ranked third to Goldman Sachs and JPMorgan Chase & Co in M&A fees collected during the quarter and fourth behind JPMorgan, Bank of America Corp and Goldman in fees from investment banking, which includes equity and debt underwriting, according to Thomson Reuters data.
Revenue from wealth management, which Morgan Stanley has been building for several years, rose 7 percent to $3.9 billion. The business hit a 23 percent pre-tax margin, in line with Gorman's target for year-end.
(Reporting by Sweta Singh and Sudarshan Varadhan in Bengaluru and Olivia Oran in New York; Editing by Lauren Tara LaCapra and Nick Zieminski)