Morgan Stanley's Earnings Fall, Beat Expectations

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By Mike Caggeso
Associate Editor

Morgan Stanley's (MS) first-quarter earnings plummeted, but stayed above analysts' expectations, giving the Wall Street giant's stock a slight boost in trading Wednesday (yesterday).

Morgan Stanley's earnings followed in the footsteps of financial giants Goldman Sachs Group, Inc. (GS) and Lehman Bros. Holdings, Inc. (LEH) – awful compared with last year's results, but fairly strong in the context of a global credit squeeze and a possible U.S. recession.

Quarterly revenue fell 17% to $8.3 billion. Income from continuing operations fell to $1.55 billion, or $1.45 a share, in the quarter ended Feb. 29. That's down from $2.31 billion, or $2.17 a share, in the year-earlier period, but well above analysts' expectations of $7.3 billion revenue and $1.03 a share.

"While many of our businesses are facing challenging market conditions that we expect to continue in the months ahead, we are satisfied with how Morgan Stanley navigated the ongoing market turbulence," Chief Executive Officer John J. Mack said in a statement.

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The firm's trading branch, Institutional Securities, posted revenues of $6.2 billion and accounted for 75% of the bank's net revenues and 96% of pre-tax income, its third-best quarter ever despite $2.3 in mortgage and loan losses and a chaotic market, The Wall Street Journal reported.

"These have been unprecedented markets in terms of the falloff in liquidity and funding," Morgan Stanley Chief Financial Officer Colm Kelleher told the Journal. "In light of that, I think that these are pretty good results."

Morgan Stanley also announced the appointment of Ken deRegt as the firm's new Chief Risk Officer.

Financials Rallying

The collapse of The Bear Stearns Cos. Inc. (BSC) started a chain reaction of sell-offs as panicked investors began to speculate about another high profile collapse. Shares of Lehman Brothers Holdings Inc. (LEH) took the biggest hit tumbling 19% to close at $31.75 apiece Monday after sinking as low as $20.25 earlier in the day.

The financial sector has posted a strong rally since then, as stronger-than-expected earnings and a 75-basis-point cut to the key Federal Funds rate from 3% to 2.25% [the sixth cut in seven months] restored some investor confidence.

Since Tuesday, however, several top-tier financials have seen their stocks soar: