Morgan Stanley Beats Estimates on Trading
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Morgan Stanley, the second-biggest U.S. securities firm, reported earnings that fell less than analysts estimated as record equity sales and trading offset writedowns from the collapse of the subprime mortgage market.
Morgan Stanley rose 1.4% in New York trading today after reporting a 42% drop in first-quarter net income, to $1.55 billion, or $1.45 a share. Analysts were estimating profit of $1.01 per share. Profit and return on equity exceeded results reported yesterday by Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. as equity-trading revenue surged 51%. The results may ease investors’ concern that access to capital is dwindling after Bear Stearns Cos. agreed to a takeover by JPMorgan Chase & Co. for a fraction of its market value.
“We had to come out of this week in regard to investment banks in general with more answers than questions,” a portfolio manager at Renaissance Financial Corp. in Leawood, Kan., Douglas Ciocca, said, which manages $1.7 billion, including Morgan Stanley stock. “We’re certainly headed in the right direction.”
First-quarter equity sales and trading revenue climbed to $3.3 billion, the firm said in a statement, compared with a 19% drop reported yesterday by Goldman Sachs.
“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,” the chief executive officer, John Mack, said in the statement.
Shares of the company climbed 59 cents to $43.45 at 4:13 p.m. in New York Stock Exchange composite trading, after rising to $47.07 earlier yesterday. Morgan Stanley staged its biggest gain in more than a decade yesterday, climbing 18%. Financial stocks rallied after Goldman and Lehman reported profits and the Fed cut its benchmark interest rate by 0.75 percentage point.
Morgan Stanley’s first-quarter revenue fell 17% to $8.3 billion, the company said. Return on equity, a measure of how effectively the firm reinvests earnings, dropped to 19.7% from 30.9% a year earlier. That compares with 15% at Goldman and 8.6% at Lehman.
“Their return-on-equity number was pretty surprising, especially after what we heard from Lehman and Goldman,” Mr. Ciocca at Renaissance Financial said.
