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By Lauren Tara LaCapra and Tanya Agrawal
(Reuters) - Morgan Stanley's second-quarter income more than doubled, helped by rising revenue in its retail brokerage business as it won more assets to manage from clients, the investment bank said on Thursday.
A onetime tax break and the ending of a joint venture with Citigroup in wealth management gave the bank its biggest income gains for the quarter. But even excluding those items, the bank posted better results in businesses including merger advisory, stock and bond underwriting and investment management.
The results beat forecasts, and Morgan Stanley's shares edged 0.24 percent higher to $32.58 as the broader market fell.
"The businesses that are going well are firing on all cylinders," said John Thompson, chief executive of Vilas Capital Management, whose second largest holding is Morgan Stanley shares.
Morgan Stanley has been reshaping its business after coming close to failing during the financial crisis. The second-largest stand-alone investment bank, long a powerhouse in areas like bond trading and commodities trading, has been increasing its reliance on its retail brokerage and investment management businesses. Its current CEO, James Gorman, previously headed the wealth management businesses.
These businesses tend to generate more stable earnings and are less likely to unravel during market calamities. Investment management and retail brokerage accounted for about 30 percent to 40 percent of the bank's quarterly revenue in 2007, but the share grew to more than half in the second quarter of 2014.
Retail clients' assets rose by $59 billion to $2 trillion in the second quarter, due in part to clients bringing money to the bank. Morgan Stanley managed to win those assets without expanding its broker force: it ended June with 16,316 financial advisers compared with 16,321 a year ago.
Revenue from wealth management rose 5 percent to $3.72 billion from the year-ago quarter, and the bank's pretax margin from the business widened to 21 percent from 18.5 percent, close to its target of 22-25 percent by the end of 2015.
Overall, net income for shareholders rose to $1.86 billion, or 94 cents per share, in the second quarter from $803 million, or 41 cents per share, in the year-ago quarter.
According to adjusted figures calculated by Thomson Reuters I/B/E/S, the company earned 60 cents per share, beating analysts' average estimate of 55 cents.
The quarter included a $609 million tax benefit. The bank also received 100 percent of the income from its wealth management business during the quarter, unlike the second quarter of 2013, when it shared that income with its joint venture partner, Citigroup. Morgan Stanley bought out Citigroup's remaining 35 percent stake in the wealth management business on June 28, 2013.
Revenue from fixed-income, currency and commodity trading fell 12.3 percent to $1 billion as a lack of volatility discouraged trading during the quarter. Those results exclude accounting adjustments linked to the value of the company's debt.
That decline is about in line with the drops posted by rivals including JPMorgan Chase & Co, Citigroup Inc, and No. 1 standalone investment bank Goldman Sachs Group Inc.
Investors' concerns about the future of the bank's bond trading business have weighed on its valuation. Morgan Stanley shares trade at about their book value, or the net accounting value of the company's assets. When the bank's earnings start rising in the coming years, as equity markets rise, said Vilas Capital's Thompson, the bank's shares could trade at 1.5 to 2 times book value.
Morgan Stanley, ranked No. 2 globally in mergers-and-acquisitions, benefited from a strong equities market in the quarter. Advisory revenue rose 26 percent to $418 million.
Separately, Chief Financial Officer Ruth Porat said in an interview that management does not believe that U.S. sanctions announced on Wednesday against Russian oil company Rosneft would affect a deal between the two companies.
(Reporting by Lauren Tara LaCapra and Tanya Agrawal; Editing by Dan Wilchins, Ted Kerr, Jonathan Oatis and Richard Chang)