Morgan Stanley capped off what has proved to be a better than expected earnings period for Wall Street by unveiling a 46 per cent jump in second-quarter profit thanks to higher income from investment banking and lower expenses.

Under chief executive James Gorman the bank has shrunk its fixed-income trading business and bet Morgan Stanley's future on growing significantly in wealth management while maintaining a strong position in deal advice and equities trading. The strategy means Morgan Stanley was more insulated than many of its Wall Street competitors during what has been a lacklustre period for bond trading. It was also well-placed to benefit from a quarter that featured buoyant bond sales, booming equity markets and the best three months for M&A announcements since 2007.

Net income, excluding an accounting quirk due to a change in the value of the bank’s own bonds and a $609 million tax benefit, climbed to $1.3 billion in the three months to the end of June.

Revenue rose to $8.6 billion, from $8.5 billion a year ago, following a 25 per cent increase in sales from investment banking and a 5 per cent gain in the wealth management business.

Adjusted earnings per share of 60 cents were higher than the 55 cents forecast by analysts. Including the accounting for bond values and tax benefit, which Morgan Stanley said was related to “new information” regarding a long-running investigation, second-quarter earnings leapt to 94 cents a share.

Morgan Stanley also hit a milestone in the second quarter, with the profit margin at its all-important wealth management business reaching 21 per cent for the first time since the bank combined its business with Smith Barney, Citigroup's former retail brokerage. Mr Gorman has pledged to boost the margin to 22-25 per cent by the fourth quarter of 2015. – (Copyright The Financial Times Limited 2014)