James Gorman’s big bet on Morgan Stanley’s brokerage business is finally starting to pay dividends.
The investment banking chief — who has hitched the firm’s fortunes to its legion of 17,000 financial advisers at its wealth-management unit — reported fourth-quarter results that topped analysts’ expectations.
The performance sent the shares up nearly 8 percent yesterday to their highest level since June.
The wealth-management division fueled profit in the latest quarter. The business started out as a joint venture with Citigroup, known as Morgan Stanley Smith Barney, until Gorman struck a deal to buy out Citi. Gorman said yesterday the bank will accelerate the purchase of Citi’s remaining 35 percent, further fueling results.
The business run by President Greg Fleming posted profit margins of 17 percent in the latest quarter. That’s better than the firm’s mid- to low-teen projections and well ahead of the mid-year timetable the bank had set.
Morgan Stanley also got a boost from cost-cutting, including 6,000 layoffs over the past year. It is aiming to slash another $1.6 billion in expenses over the next 18 months but said that will not result in more job cuts.
The measures helped the bank swing to a quarterly profit of $507 million, or 25 cents a share, compared with a loss of $250 million, or 15 cents, a year earlier.
Morgan Stanley changed the way it values debt due to accounting rules. Excluding the impact of that change, it had per-share earnings of 45 cents, topping analysts’ estimates for 27 cents.
Morgan Stanley said this week it would defer cash bonuses for top managers, spreading them out over three years. Overall compensation fell 4 .5 percent to $15.6 billion in 2012.
Gorman’s bumper quarter comes as investors are putting more pressure on the firm. “I am confident that we are on a path to return capital to shareholders regardless of the macro environment,” Gorman said.