Morgan Stanley reports bigger loss from Q1

Morgan Stanley posted a loss from continuing operations of $159m or $1.37 per share vs. an income of $689m or $0.61 from a year ago. This is also worse than first quarter’s loss of $0.58 and 88 cents lower than the $0.49 cent loss expected by analysts.  Consolidating both quarters, loss is at a sum of $2.00 per share. Percentage comparison year on year yield a meaningless result but from previous quarter, this loss reflects a 136% decline.

Net revenues for Q2 were $5.4bn vs. last year’s $6.1bn.  Although lower, this is still almost double last quarter’s revenue of $2.9bn.  The company also reported a slightly higher compensation expense from last year of $3.9bn vs. $3.1bn for Q2 of 2008, but double last quarter’s $2.0bn.

From its different arms, its trading and investment banking business were the biggest contributor, which should not come as a surprise (particularly the former as some of the banks that have reported prior also saw huge contributions from these.

The results for MS were significantly affected by the tightening of credit spreads on some LT debt, causing a negative revenue of $2.3bn.  There was also the effect of TARP repayment which cost the firm an additional $850m.  Both in effect cost Morgan’s top line by $2.06 a share.

The following are highlights the company pointed out: the firm ranked first in global M&A activity, its fixed income loss was partly offset by strong results from investment grade and distressed debt trading, and results also include losses of $0.7bn from real estate investments.

CEO John Mack said in the statement: “This quarter we also saw continued improvement in our credit default spreads and were among the first banks to repurchase TARP capital – which are significant positive developments for the Firm, but nonetheless had a negative impact on our results. Morgan Stanley would have been solidly profitable this quarter if not for these two positive developments.”

Other result-related facts:

  • Despite being #1, advisory revenues declined by 29%
  • Underwriting fees, however, rose 19%
  • Fixed income sales and trading net revenues were 44% higher from last year but it was much lower for the equities side
  • VaR of $113m improved from last quarter’s $115m but not so from last year’s $100m
  • Net revenues for the Global Wealth Management division was also higher by 13%, helped by strong performance from the MS Smith Barney joint venture
  • The firm’s Asset Management unit’s Core business showed higher revenue but its Merchant Banking business had a loss of $63m from last year’s negative $28m.  The discouraging result came about through mark-to-market losses on a lending facility to a real estate fund and other losses from RE investment related hedging activity
  • Tier 1 capital ration stood at 15.8%

The whole earnings release can be found HERE (PDF).

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