Profits Rise at Goldman and Morgan Stanley

Morgan Stanley and Goldman Sachs Group Inc., two of Wall Street’s premier investment banks, Tuesday said profits surged as fixed-income trading remained strong and mergers and acquisitions and securities underwriting picked up.

The results surpassed analysts’ expectations but came as investors questioned how much the expected rise in interest rates would hurt trading revenue, which had bolstered profits over the last several years.

Morgan Stanley’s fixed-income unit posted record revenue as it took on more risk and client activity increased. Goldman’s fixed-income revenue was up from the same quarter in 2003, but declined from the first quarter of this year.

Morgan Stanley said second-quarter net income rose to $1.22 billion, or $1.10 a share, from $599 million, or 55 cents a share, a year earlier. On average, analysts had expected $1.05 a share, according to Reuters Estimates.

Goldman’s second-quarter net income rose to $1.19 billion, or $2.31 a share, from $695 million, or $1.36 a share, a year earlier. The average estimate among analysts polled by Reuters Estimates was $1.95 a share.

Goldman shares rose $1.81 to $90.60 and Morgan Stanleyclimbed 90 cents to $52.15, both on the New York Stock Exchange.

Although signs of economic growth around the globe make for a favorable long-term outlook, Morgan Stanley Chief Financial Officer David Sidwell said issues such as the timing of interest rate increases, high oil prices and geopolitical risk had made him cautious short term.

“Those concerns are definitely keeping investors on the side,” Sidwell told journalists on a conference call. “For us, it’s a balance of near-term caution and feeling good that if the global economy is stronger, it is good long-term for our business.”