Morgan Stanley outshines rival Goldman Sachs in trading

Morgan Stanley outshone rival Goldman Sachs Group Inc. in trading during the second quarter, upending the usual pecking order on Wall Street.

Morgan Stanley shares surged after the bank said it swung to a second-quarter profit with rising revenue across its business, bucking an industry trend.

The financial services company said earnings for the quarter came in at $1.58 billion, or $1.09 a share, compared with a loss of $1.26 billion, or $1.10, a year earlier. On an adjusted basis, Morgan Stanley said profit in the latest quarter was $1.44 billion, or 80 cents.

Revenue rose 53% to $7.95 billion. Morgan Stanley generated $1.4 billion in net revenue from equity sales and trading in the period. That was in line with the previous quarter.

Goldman Sachs said Tuesday that its equity-trading operations generated net revenue of $235 million in the second quarter, down 84% from the first quarter. The drop was partly caused by the firm’s inability to hedge against an increase in stock market volatility.

Some analysts and investors consider Goldman a risk-management expert, whereas rivals such as Morgan Stanley have slipped up more often in the past. During the second quarter, this trend reversed.

“This is a very impressive quarter for Morgan Stanley on the trading side,” Doug Sipkin, an analyst at Ticonderoga Securities, wrote in a note to investors Wednesday. “Considering peer results, this was not a bad quarter for Morgan Stanley, in our view. Trading held up in a tough environment.”

Despite the positive results, Morgan Stanley Chief Executive James Gorman sounded a cautious note on a conference call with analysts Wednesday morning.

“We’ve made progress this quarter, but still have a long way to go,” Gorman said. “The second quarter was a very difficult environment for the businesses we operate in, and within the quarter, the second half was more challenging than the first.”

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Barr writes for MarketWatch.com/McClatchy.