Morgan Stanley Easily Tops Earnings Forecasts
Morgan Stanley, announcing quarterly results earlier than expected, reported a profit that declined slightly but blew past analysts' earnings expectations as the No. 2 investment bank attempted to show that it's withstanding the financial turmoil that has dramatically changed the face of Wall Street over the past few days.
Excluding items, the investment bank said it earned $1.41 billion, or $1.32 a share, on sales of $8.05 billion in the third quarter.
Last year, Morgan Stanley reported a profit of $1.526 billion, or $1.38 a share on sales of $7.958 billion in the same period last year.
The firm was expected to report earnings of 78 cents a share, according to a consensus compiled by Thomson Reuters. Analysts, on average, looked for revenue of $6.3 billion.
Shares of Morgan Stanley temporarily spiked more than 10 percent in late trading Tuesday before edging back into slightly negative territory.
The stock finished the regular New York Stock Exchange session at $28.70, down almost 11 percent.
"Despite unprecedented market conditions, Morgan Stanley's core client franchise achieved solid revenue growth, profitability and return-on-equity this quarter," said Chairman and Chief Executive John Mack in a statement.
Investment losses were $245 million, compared with gains of $217 million in the third quarter of 2007, reflecting losses on investments in real estate funds, the firm said.
Fixed income sales and trading net revenue fell 8 percent to $1.9 billion, due to the widening of credit spreads on certain long-term debt. Morgan Stanley also reported other sales and trading net losses of about $410 million, primarily from mark-to-market losses on loans and other commitments.
"This is great news for the whole financial sector," said Marshall Front, chairman of Front Barrett Associates, said of the earnings report. "I think the key to this whole thing was that they looked better than Goldman Sachs' earnings earlier in the day."
Also Tuesday, rival Goldman Sachs said third-quarter earnings dropped 70 percent, marked by sharply lower banking, trading and investment results.
Morgan Stanley and Goldman Sachs are the two remaining major independent investment banks after Lehman Brothers filed for bankruptcy, while Merrill Lynch was sold to Bank of America for $50 billion.
Debt-Protection Costs Drop After Report
The cost to insure the debt of Morgan Stanley fell after the investment bank reported better-than-expected earnings for the third quarter.
Credit default swaps on Morgan Stanley's debt dropped 35 basis points to around 710 basis points, or $710,000 per year for five years to insure $10 million in debt, after earlier jumping as high as 880 basis points, said a trader. The swaps closed on Monday at 499 basis points, according to CMA DataVision.
The investment-grade credit derivative index also improved on the earnings, tightening 8 basis points to 182 basis points, according to Markit Intraday.
- Wire services contributed to this report.