The bank, which is owned by Deutsche Bank, nearly doubled the volumes handled in its debt trading business from dollars 68bn to dollars 118bn, as dealings in emerging market debt soared last year. Morgan trades in the debt of 26 countries.
Although there was a shakeout in the markets in February, when Latin American debt dropped sharply in value and Morgan lost money, the first two months of the new year taken together were still profitable in this area, according to Michael Dobson, group chief executive.
Debt trading accounted for about half of the company's overall trading revenues, including bond market dealings, which in turn made up about one third of total revenues, Mr Dobson said.
The group as a whole made a pre-tax return on capital of 55 per cent. Costs rose because of the bonuses paid to staff in buoyant markets, but as a wholly owned subsidiary, Morgan gave no details.
It has, however, kept its staff numbers to 2,500, well below those of several other comparable merchant banks, and Mr Dobson said that bonuses had not risen nearly as much as profits.
Funds under management rose from pounds 20.5bn to pounds 28.3bn and a further pounds 1.5bn of new business has been won in the first two months of the current year.
The bank also continued to build up its business in the Asia Pacific region where it made a pounds 35m profit.
John Craven, the chairman, said Morgan had undertaken two big expansions in the past four years - into development capital and debt trading.
A new development capital fund is to be launched soon, exceeding the pounds 175m of the bank's first fund. The debt trading business, which has expanded from 50 to 200 people in four years, has added equity research and sales.
The bank has also invested heavily in its South-east Asian equities business.
Morgan paid a pounds 100m dividend to Deutsche, after which its shareholders' funds of pounds 448m were pounds 62m higher than a year earlier.
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