By Lauren Tara LaCapra and Anil D'Silva
(Reuters) - Morgan Stanley reported a 55 percent jump in first-quarter earnings as higher revenue from its institutional securities business augmented another strong quarter from wealth management, sending shares in the Wall Street bank higher.
The sixth-largest U.S. bank by assets reported net income applicable to the company of $1.45 billion, or 74 cents per share, compared with $936 million, or 48 cents per share, a year earlier.
Morgan Stanley's shares rose 2.8 percent to $30.74 in pre-market trading on Thursday.
Although volumes were lower across most fixed-income businesses, Morgan Stanley said revenue from fixed-income and commodities sales and trading rose to $1.7 billion, a 13 percent increase from a year earlier.
Chief Financial Officer Ruth Porat attributed this growth to "commodities, credit and mortgage".
The increase in fixed-income and commodities sales and trading revenue contrasted with declines in the equivalent units of JPMorgan Chase & Co, Citigroup Inc and Bank of America Corp, which reported results this week and last.
Goldman Sachs Group Inc, which has more exposure to fixed-income trading than its peers, reported an 11 percent drop in first-quarter profit, though it beat market estimates.
The fixed-income trading business across Wall Street has been hurt by new capital rules, a reduction in risk-taking by clients and by changes to the way derivatives are traded.
In response, banks have cut fixed-income trading staff and tried to automate more activity. Many analysts expect client trading volumes to rise again eventually, but the profitability of the business over the long term remains in doubt.
Porat told Reuters that Morgan Stanley reduced its fixed-income risk-weighted assets by 5 percent in the first quarter.
The bank had $199 billion of those assets according to Basel 3 capital measurements as of March 31, down from $210 billion in the prior quarter, Porat said in an interview.
Morgan Stanley is working toward a goal of having less than $180 billion of risk-weighted fixed-income assets by 2015 in order to free up capital.
Morgan Stanley's decision to dive deeper into the wealth-management business has also helped to shield it from the decline in fixed-income trading revenue that has been happening across Wall Street for the past five years.
The bank said its wealth management division's pre-tax profit margin was 19 percent in the quarter ended March 31, up from 17 percent in the same quarter a year earlier.
Wealth management revenue rose 4 percent to $3.62 billion and the division's earnings were up 65 percent to $423 million.
A year ago, Morgan Stanley did not yet have full ownership of its wealth-management business, the product of a complicated acquisition of the Smith Barney brokerage from Citigroup after combining part of its own brokerage business with Smith Barney in a joint venture.
Morgan Stanley finished its buyout of the business in July, and therefore no longer has to share earnings with Citigroup. Costs related to the acquisition have also declined.
Also on Thursday, Morgan Stanley reiterated its plan to buy back up to another $1 billion of shares and double its dividend this year.
The bank said debt underwriting revenue rose 18 percent to $485 million, reflecting an increase in loan fees.
Equity underwriting rose 11 percent to $315 million as a slew of companies filed for initial public offerings. Advisory revenue rose 34 percent $336 million compared with a year ago.
Overall, first-quarter net income from continuing operations applicable to the company rose 49 percent to $1.47 billion.
(Editing by Robin Paxton)