Morgan’s profit tops estimates
Morgan Stanley posted better-than-expected quarterly earnings Wednesday, joining those from two of its rivals and indicating that Wall Street may be getting a better grip on the credit crisis.
The nation’s second-largest investment bank used aggressive stock and bond trading to offset more losses linked to sub-prime mortgages. Morgan Stanley -- like Lehman Bros. Holdings Inc. and Goldman Sachs Group Inc. on Tuesday -- topped Wall Street’s reduced expectations by a wide margin.
Morgan Stanley’s results came during a tumultuous week. Just a few days earlier, rival Bear Stearns Cos. sold itself at a fire-sale $2-a-share price to JPMorgan Chase & Co. to avoid declaring bankruptcy. That sent a shock wave through Wall Street as investors wondered whether other investment banks might be in the same predicament.
But the strong results from Morgan Stanley, Goldman and Lehman helped assuage fears of a wider meltdown in the financial system -- at least for now.
“Fact is, like it or not, this is an inherently risky business where the returns will shift to those willing to take the most leverage,” said Jack Ablin, chief investment officer of Harris Private Bank. “Expectations had us in a tailspin.”
The earnings results not only helped shares of the investment banks recover from the lows they hit Monday in the aftermath of Bear’s sale but also backed claims by the companies’ chief executives that they could take advantage of the market’s dislocation.
John Mack, Morgan Stanley’s chief executive, said the investment house known for its trading prowess “effectively capitalized on market opportunities and aggressively managed” its positions.
The company had about $2.3 billion worth of write-downs linked to the credit and housing market crisis but one of its best trading performances in history.
Morgan Stanley wrote down about $9.4 billion during last year’s second half. Global banks and brokerages have so far claimed about $200 billion worth of write-downs since last year. The company said it earned $1.53 billion after preferred dividends, or $1.45 a share, down 42% from $2.66 billion, or $2.17, a year earlier. Revenue fell 17% to $8.3 billion.
But the lower results easily topped analysts’ expectations for a profit of $1.03 a share on $7.19 billion of revenue, according to Thomson Financial. Morgan Stanley’s shares rose 59 cents, or 1.4%, to $43.45, after a 17% gain in Tuesday’s market rally.
Morgan Stanley’s institutional securities business -- which includes investment banking and trading -- posted $6.2 billion of revenue. The results marked the division’s third-best quarter ever.
Meanwhile, volatility in the bond market pushed fixed-income sales and trading revenue to their second-best showing with $2.9 billion of revenue.
Though offset by mortgage write-downs, Morgan Stanley relied on robust commodities and currency markets to drive results.
