By Joseph A. Giannone
NEW YORK (Reuters) - Morgan Stanley (MS.N: Quote, Profile, Research) reported sharply
lower quarterly earnings on Wednesday after absorbing $2.3
billion of write-downs, but resilient trading results helped
the No. 2 U.S. investment bank beat Wall Street’s reduced
expectations by a wide margin.
By several measures, Morgan had the best quarter among the
big Wall Street banks, generating more profit than arch-rival
Goldman Sachs (GS.N: Quote, Profile, Research), suffering the smallest year-over-year
profit drop and posting a 20 percent return on equity.
The results give a boost to Chief Executive John Mack,
trying to rally a bank that recorded $9.4 billion in mortgage
trading losses last year and steer it through the most
difficult market environment in decades.
They also deliver a dose of good news to a market shaken by
the collapse of No. 5 investment bank Bear Stearns Cos (BSC.N: Quote, Profile, Research)
and which had been prepared for more signs of distress. Goldman
and Lehman Brothers (LEH.N: Quote, Profile, Research) sparked a rally in bank stocks on
Tuesday by posting surprisingly strong results and easing
worries about new failures.
“This was a pretty strong quarter for (Morgan Stanley) in
this environment,” said Jeff Harte, brokerage analyst at
Sandler O’Neill %26amp; Partners in Chicago. “Trading was a lot
stronger than I was looking for, which implies they were well
positioned.”
Morgan’s income from continuing operations fell 42 percent
to $1.55 billion, or $1.45 a share, in the fiscal first quarter
ended Feb. 29, from $2.31 billion, or $2.17 a share, a year
earlier. Revenue fell 17 percent to $8.3 billion.
The results trounced the analysts’ average forecast of
$1.03 a share on revenue of $7.3 billion, according to Reuters
Estimates. Morgan shares, which jumped 19 percent Tuesday, rose
7 percent to $45.88 in morning New York Stock Exchange trade
Wednesday.
“They have gone a long way toward cleaning up and certainly
delivered a very solid quarter,” Merrill Lynch analysts said in
a note. “We expect the rally in the brokers to continue,
especially for Morgan Stanley.” Continued…
