Morgan Stanley tops forecast
In another boost to confidence on Wall Street, Morgan Stanley, the investment bank, reported a profit of $1.5 billion for its first quarter Wednesday, surpassing analyst estimates and further easing investor fears of another investment bank failure following the collapse of Bear Stearns.
The firm reported earnings of $1.6 billion or $1.45 a share, down from from $2.66 billion or $2.51 a year ago, a 42 percent decline that was cheered by investors who pushed the stock up 8 percent at the markets opening. Revenue declined 17 percent to $8.3 billion from $10 billion a year earlier.
Morgan Stanley, unlike Lehman Brothers, was not a focus of investor concerns in recent days given its diversified line of businesses. Still its stock, along with other investment banks dropped sharply last week as unease about exposure to illiquid mortgage-related securities peaked.
Morgan Stanley reported record revenue in its institutional securities division, a unit that has attracted scrutiny after last years unexpected $9.4 billion charge for risky, failed trades. The institutional division reported a pretax profit of $2.1 billion, compared with a loss of $6.4 billion last quarter. Strong performance in commodities and currency trading spurred results there.
The firms bread and butter equities business also shined, with revenue increasing 51 percent compared with last year, driven by derivatives and its hedge fund business.
The results should ease some of the recent investor pressure on the chief executive John J. Mack, who has been criticized by an activist group, CtW, for the misguided investments that led to last years write-down. The group has called for Mack to step down as chairman.
“Despite turbulent markets, Morgan Stanley achieved strong performance across many of our businesses this quarter,” Mack said in a statement.
“While many of our businesses are facing challenging market conditions that we expect to continue in the months ahead,” he said, “we are satisfied with how Morgan Stanley navigated the ongoing market turbulence.”
Since the write-downs last year, the bank has taken aggressive steps to change its approach to risk, including the appointment of Kenneth deRegt, a former fixed income executive at Morgan Stanley, to be the firms chief risk officer, reporting directly to Mack as well as easing its exposure to risky areas like commercial real estate.
The decline in Morgan Stanleys profits was less pronounced than Lehman Brothers and Goldman Sachs, which reported results on Monday that gave comfort to a worried market. Morgan Stanleys net profit for the quarter squeaked by those of its arch rival Goldman Sachs, providing a considerable spur to morale at a firm that has long been frustrated by the perception that the performance gap between Goldman and Morgan Stanley has widened.
Morgan Stanley reported losses of $2.3 billion from mortgage trading positions as well as leveraged loans. The struggles continued at Morgan Stanleys asset management division, which reported a $161 million pretax loss from real estate investments and write-downs on structured investments.
