Morgan Stanley’s Earnings Rise 49%
Morgan Stanley ended a rough year on a high note Tuesday, posting surprisingly strong fourth-quarter earnings driven by investment banking and trading as well as some one-time gains.
Morgan Stanley’s net income rose 49% to $1.79 billion, or $1.68 a share, in the three months ended Nov. 25, from $1.20 billion, or $1.09, a year earlier. Net revenue rose 28% to $6.96 billion.
The results trounced Wall Street’s low expectations, with analysts on average forecasting zero profit growth of $1.09 a share, according to Reuters Estimates. The company’s stock rose $1.04, to $57.71.
“I know a lot of people were bracing for the worst,” said Tim Woolston, a portfolio manager at Boston Advisors. “But they’ve righted the ship, stabilized things and have everybody rowing together. And you have one of the best market environments in some time.”
Morgan Stanley’s quarterly profit was burnished by a tax benefit of $280 million, after it repatriated $4 billion of overseas earnings, and a $173-million gain on its stake in Intercontinental Exchange Inc.
Increased use of stock in bonuses had the effect of reducing compensation costs by 15 cents a share, a Morgan Stanley spokesman said, because stock is expensed in future quarters. Senior executives, for example, received 65% of their year-end bonuses in stock, up from 55% last year.
For the year, profit fell 5% to $4.26 billion as banking and trading gains were sapped by credit card, brokerage and legal woes. Severance and recruitment bonuses piled on $310 million in compensation costs.
By contrast, rivals Goldman Sachs Group Inc., Lehman Bros. Holdings Inc. and Bear Stearns Cos. in the last week posted record earnings and revenue unburdened by these issues.
Morgan Stanley continues to wrestle with the fallout of management turmoil this year, as shareholders pushed for the ouster of former Chief Executive Philip Purcell and dozens of talented bankers and traders quit. In June former Morgan Stanley President John Mack replaced Purcell as CEO.
Since then, Mack has overhauled management, slashed 1,000 underperforming brokers, fired 24 bankers and set out plans to double profit in the next five years. He also reversed Purcell’s decision to spin off the Discover credit card unit.
Despite the turmoil, Morgan Stanley posted record annual revenue, with all-time highs in fixed-income sales and trading and prime brokerage revenue. And the recent boom in merger activity worldwide helped Morgan Stanley generate its highest financial advisory revenue in five years.
