Investors Dig Morgan Stanley’s Transformation

Morgan Stanley (NYSE: MS) shares are popping on Thursday–up 4.7% in midday trading and reaching 52-week highs.

The New York investment bank announced $980 million in net profits for the quarter, and $8.5 billion in revenues. The profits were just a shade below analysts’ expectations but the revenues were much higher than expected.

Along with the earnings release the firm announced a $500 million share repurchase program, which surely contributed to the stocks surging higher.

Morgan Stanley is in the midst of a transformation right now. For decades, it fought neck-to-neck with Goldman Sachs as the top underwriter and M&A advisor in investment banking. In recent years, however, its star has dimmed a bit.

Now, Morgan Stanley has the country’s biggest retail brokerage business, eclipsing longtime rivals Merrill Lynch and UBS.  And that will serve as the company’s strategy going forward, which is eschewing the volatility of investment banking and focusing more on the stable–but less sexy–business of brokerage and wealth management.

CEO James Gorman has aggressively trimmed costs (including bankers’ pay, for which cash bonus is capped at $125K) to increased return on equity. In fact, he had a message for investment banking employees who may be disgruntled with the pay decreases.

Gorman said on Bloomberg TV, to such bankers: “You’re naive, read the newspaper, No. 1. No. 2, if you put your compensation in a one-year context to define your overall level of happiness, you have a problem which is much bigger than the job. And No. 3, if you’re really unhappy, just leave. I mean, life’s too short.”



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