FORTUNE -- James Gorman appears to have found Wall Street's secret sauce.
In a quarter when nearly all of its rivals struggled, Morgan Stanley (MS) reported better-than-expected earnings for the first three months of the year. Profits from continuing operations rose to $1.39 billion, up from $1.18 billion a year ago. Analysts had expected the company to earn $1.22 billion.
Even more impressive, revenue from bond trading at Morgan Stanley rose 9%. That same business line at Goldman Sachs (GS) was down 11%. And most of the rest of Wall Street saw double-digit drops.
A few years ago, Morgan Stanley was basically left for dead. Critics said the bank couldn't compete with JPMorgan Chase (JPM) and Bank of America (BAC), both of which got bigger in the financial crisis. Nonetheless, Morgan Stanley still had its lead in doing stock deals, particularly in the tech sector. Then came the bungled Facebook (FB) IPO, and the bank seemed like a goner.
Gorman's early 2009 acquisition of Citigroup's retail brokerage business Smith Barney has added stability to its operations, and the firm has been able to take back market share in its trading business.
That being said, the Smith Barney acquisition has tied Morgan Stanley's fortunes with the prospects of average retail investors, who tend to take a while to react to changes in the market. So, perhaps, it's not surprising that the firm would still be doing well after last year's huge run-up in stock prices.
But this year has been rockier for the market. If stocks continue to disappoint, Gorman's acquisition might not look so hot. What's more, Morgan Stanley's bond business had lagged the rest of the Street. So it's perhaps not as surprising that the bank would see a bounce back.
Also, a healthy percentage of the jump in trading revenue came from Morgan Stanley's commodities business, which regulators may soon force banks to scale back. And Morgan Stanley's return on equity, a key profitability metric on Wall Street, is still only 8.5%, lower than its rivals and far lower than the double-digit rates the bank used to report before the financial crisis.
Gorman will have to show that investors are willing to pay up for lower margins but more stable Wall Street businesses.
Still, these aren't concerns anyone will worry about today. Morgan Stanley's shares are up 45% from last year, nearly 5% on the good earnings alone. Morgan Stanley is not dead.
Occupy Wall Street rejoice: As more people land jobs, bank earnings are looking down.
FORTUNE -- Here's a switch: The bankers are all of a sudden doing worse than the butchers, the bakers, and the candlestick makers.
On Wednesday, Bank of America (BAC) announced that it had lost nearly $300 million in the first quarter. Analysts were expecting the bank to turn a profit. A year ago, it earned $1.5 billion. Meanwhile, MOREStephen Gandel, senior editor - Apr 17, 2014 5:00 AM ET
The Fed approves the capital plans of 25 others. Goldman and Bank of America were forced to resubmit.
FORTUNE -- The Federal Reserve approved the capital plans of 25 of the nation's 30 largest banks on Wednesday as part of the final leg of its annual required stress tests.
Citigroup was the most notable bank among those that had their capital plans rejected. The Fed said it was troubled by Citi's inability to MOREStephen Gandel, senior editor - Mar 26, 2014 4:00 PM ET
Citigroup is the latest Wall Street bank to limit work hours, but that won't mean underlings will have more time to kick back.
By Sanjay Sanghoee
FORTUNE -- Citigroup, the nation's third-largest bank, is giving its junior bankers a break from Wall Street's infamously rigorous work hours. In a memo last week, the bank told its underlings they'll be required to take Saturdays off and use all their vacation time each year; the firm MOREFeb 4, 2014 10:17 AM ET
Banks are increasing their home equity lines of credit business, but such loans made during the housing heyday could still haunt them.Nin-Hai Tseng, Writer - Nov 27, 2013 11:19 AM ET
How much will Twitter have to make in profits to pay for the $1 billion it left on the table?
FORTUNE -- Twitter's debut as a public company stunningly illustrates that two of the most baffling customs in the investment business are back in full force. Both are hallmarks of frothy markets that typically retreat in tough times. The first is Wall Street's preferred IPO process that enriches the banks and MOREShawn Tully, senior editor-at-large - Nov 8, 2013 12:52 PM ET
In a new filing, the bank reiterated that it's not worried about future legal expenses.
FORTUNE -- Morgan Stanley is either the cleanest bank on Wall Street, or it's living in denial.
Talk of JPMorgan Chase's $13 billion settlement has dramatically upped the expectations of what banks may pay to put the financial crisis behind them. On Thursday, in a regulatory filing, Goldman Sachs (GS) estimated it may spend $4 billion more MOREStephen Gandel, senior editor - Nov 8, 2013 5:00 AM ET
The Wells Fargo wagon is pulling into profit town. It won't stay for long, though.Stephen Gandel, senior editor - Nov 1, 2013 12:43 PM ET
Two new studies find preferential treatment for banks with political ties to the Treasury Department.
FORTUNE -- Move over "too big." There's a new knock on the mega banks: "Too connected to fail."
Two studies published in the past few weeks tackle the issue of whether big banks get special privileges because of their connections to top regulators and Washington officials.
Both studies focus on the early days of the financial crisis. The MOREStephen Gandel, senior editor - Oct 28, 2013 5:00 AM ET
Government attorneys successfully used a controversial interpretation of an obscure law to gain a victory against BofA. This could have dangerous consequences for the rest of Wall Street.Oct 25, 2013 5:00 AM ET
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