NEW YORK (AP) — Profits roared back at the investment bank Morgan Stanley in the fourth quarter, reversing a loss in the same period a year ago, when its results were weighed down by a costly legal settlement.
Earnings increased sharply across the bank's business lines, and its stock jumped. Morgan Stanley's investment bank underwrote more stock and bond offerings and brought in more fees from advising companies on mergers and other deals. Financial advisers in the wealth management unit, who work with individual investors, generated more revenue per worker.
The bank is transforming itself to adapt to a post-financial crisis world. Like other investment banks, Morgan Stanley has traditionally focused on doing business with companies, governments and other big organizations. But the bank is adapting its strategy ahead of new regulations, which are eliminating some of the practices that the bank used to rely on for revenue, such as trading for its own profit.
So Morgan Stanley is expanding its work with individual investors, which can provide a steady source of revenue even when financial markets are volatile. A big part of that plan is the retail brokerage, Morgan Stanley Smith Barney, which it jointly owns with Citigroup. Morgan Stanley is in the process of buying out Citi's remaining 35 percent stake, and said it plans to do so by the end of this year.
At the same time, it's scaling back parts of the investment bank. It plans to pull back on investment banking in Russia and the Middle East and hold off on expansion plans for other countries, focusing instead on New York, London and Hong Kong. And it is trimming 1,700 positions, with a focus on the investment bank.
"Our approach has been, 'Hey, regulation is very important,'" Chief Financial Officer Ruth Porat said in an interview. "'Let's make the investment and be patient and not wait to see where it's headed.'"
Morgan Stanley executives have also pushed for changing the way that bankers are paid, a topic that has been a flashpoint since the financial crisis. Porat said that bonuses this year for the bank's highest-paid workers, roughly the top 20 percent, will be deferred. That means they'll be paid in installments over three years, rather than in an upfront lump sum.
Corporate governance experts and shareholder activists tend to favor this type of pay structure, saying that the longer-term payout encourages bankers not to take unreasonable risks. Porat said it helps tie the bank's interests to that of its shareholders.