Ahead of the Bell: Morgan Stanley

NEW YORK - Facing further losses in its commercial real estate lending portfolio, Morgan Stanley is expected to post a loss when it reports second-quarter results Wednesday.

Analysts polled by Thomson Reuters, on average, forecast the New York-based bank will lose 49 cents per share for the quarter on revenue of $5.35 billion.

Morgan Stanley's ongoing struggles are likely to stand in stark contrast to competitor Goldman Sachs Group Inc., which has ben considered the strongest bank during the recession. Last week, Goldman reported a $2.7 billion second-quarter profit easily topping analysts expectations.

Goldman has largely sidestepped major losses that other banks have incurred during the credit crisis and recession and returned to its traditionally aggressive trading to reap big profits.

Aside from continuing losses from real estate exposure — which accounted for $1 billion in losses during the first quarter — Morgan Stanley will also record a one-time, non-cash charge of $892 million during the quarter because of the repayment of the TARP funds. Morgan Stanley was one of 10 major banks, including Goldman Sachs, that repaid the money in June.

Hundreds of banks received money last fall amid the peak of the credit crisis as the Treasury Department launched a $700 billion program aimed at trying to kick start stagnant credit markets. Morgan Stanley had received $10 billion in funds.

The bank is also likely to face charges tied to the integration of retail brokerage Smith Barney. Morgan Stanley completed its acquisition of a majority stake in the firm from Citigroup Inc. during the second quarter.

It is now in the process of combining its retail brokerage operations with those of Smith Barney, which it renamed Morgan Stanley Smith Barney.

FBR Capital Markets analyst said Morgan Stanley's business is expected to rebound and eventually prosper, though it will continue to be affected by investment write-downs and integration costs tied to the Smith Barney acquisition through early 2010.

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