Morgan Stanley Profit Drops 3%, Less Than Predicted (Update2)
By Christine Harper
Sept. 16 (Bloomberg) -- Morgan Stanley's third-quarter profit fell less than estimated as revenue from stock trading and an asset sale cushioned a drop in the firm's investment banking and fixed-income businesses.
Earnings fell 3 percent to $1.43 billion, or $1.32 per share, in the three months to Aug. 31, from $1.47 billion, or $1.38, a year ago, the company said today in a statement. The average estimate of 18 analysts surveyed by Bloomberg was 78 cents a share. The stock was little-changed after the close of New York trading.
Morgan Stanley Chief Executive Officer John Mack, 63, is trying to navigate declining markets and a loss of investor confidence that have led to emergency sales of Merrill Lynch & Co. and Bear Stearns Cos. and the bankruptcy of 158-year-old Lehman Brothers Holdings Inc. The turmoil has led some economists and analysts to say investment banks, which rely on stock and bond markets for funding, need to combine with commercial banks that have stable financing from deposits.
``We are very convinced and confident in the broker-dealer model,'' Morgan Stanley Chief Financial Officer Colm Kelleher said in a telephone interview. ``The market unfortunately is based on rumor and fear.''
Before the market closed today, Morgan Stanley, the second- biggest U.S. securities firm, fell $2.03, or 6.3 percent, to $30.16 in New York Stock Exchange composite trading. The shares have dropped 43 percent this year, the second-worst performance among the 10 companies in the XBD Amex Securities Broker/Deal Index, after Merrill.
`Acting Irrationally'
The company decided to put out its earnings today instead of tomorrow, when they were scheduled, to calm investors, said Kelleher, 51. Credit-rating downgrades of American International Group Inc., the biggest U.S. insurer by assets, raised concern today that strains on the financial system are spreading.
``I felt that it was appropriate given circumstances and turmoil in the market,'' he said. ``The market's acting irrationally.''
On a conference call with analysts, he said Morgan Stanley's risk of losses from Lehman and AIG were ``not material.''
Goldman Sachs Group Inc., the largest U.S. securities firm, said earlier today that profit fell 70 percent in the third quarter from a year earlier, the steepest decline since the company went public in 1999. David Viniar, Goldman's chief financial officer, said the firm's success in skirting losses through the crisis shows that investors should focus on performance, not the business model.
MSCI Gain
Morgan Stanley's results included a $745 million pretax gain from the sale of part of the firm's stake in MSCI Inc., an index company. The results also included $1.4 billion of gains recorded because the credit spreads on the company's debt widened.
``The earnings were not as bad as people were fearing based on everything that has transpired,'' said Jon Fisher, who oversees $1.5 billion including Morgan Stanley shares at Minneapolis-based Fifth Third Asset Management. ``They were not quite as leveraged as Lehman and Bear Stearns, and they have been more proactive on the hedging front, taking risks off the balance sheet.''
Net revenue rose 1 percent to $8 billion from a year earlier and the return on equity, a measure of how well the firm reinvests earnings, was 16.5 percent in the quarter, compared with 17.2 percent in the prior year.
``We have continued to actively reduce our legacy positions and carefully manage our risk, capital and liquidity,'' Mack said in the company's statement. The firm is ``well- positioned,'' he said.
To contact the reporter on this story: Christine Harper in New York at
charper@bloomberg.net.
Last Updated: September 16, 2008 18:08 EDT
Enviado: 17/9/2008 0:18
