NEW YORK (CNNfn) - Securities firm Morgan Stanley Dean Witter & Co. posted record fourth- quarter and full-year earnings Monday, almost a full dollar above analysts’ expectations, fueled by surging fees from advising companies on mergers and acquisitions.|
The New York-based company also announced a 2-for-1 stock-split and a 67 percent boost in its quarterly dividend.
Income for the firm’s fiscal fourth quarter, ended Nov. 30, surged 86 percent to $1.63 billion, or $2.84 a diluted share, from $879 million, or $1.89, a year earlier. The year-ago results include an after-tax gain of $345 million from the sale of businesses, as well as a $117 million accounting-related charge. Revenue rose to $5.7 billion from $4 billion.
Analysts polled by First Call Corp. had expected the company to earn $1.96 a share. Most investment banks and brokerages are expected to report record 1999 results due to a surge in share trading and stock offerings, robust stock market
returns, and global merger frenzy. Wall Street powerhouse Goldman Sachs (GS) is expected to unveil its fourth-quarter performance tomorrow.
The stellar earnings report helped propel the company’s stock on Wall Street. In midday trade, Morgan Stanley (MWD) shares were up 3-1/4, or 2.5 percent, at 131-5/16. The company’s stock has almost doubled this year and has gained more than 40 percent in the last three months alone.
Behind the numbers
To be sure, some analysts saw the numbers as somewhat too good to be true, pointing out that the company’s method of counting compensation - a large part of securities firms’ expenses - is calculated a little differently than other securities firms and may have helped boost the bottom line.
"It was a very good quarter, but the numbers aren’t really as good as they look,” said Steve Eisman, a securities analyst with CIBC World Markets in New York.
Morgan Stanley’s stock has gained more than 40 percent in the last three months
During the first three quarters, Morgan Stanley’s compensation ratio averaged around 49 percent, according to Eisman’s calculations. It then dropped to 24.9 percent in the fourth quarter, significantly reducing the firm’s total expenses.
"Calculating it that way, you get a very different picture of the earnings of the company,” Eisman said. "While it was a good quarter, the second quarter was actually better.”
Securities income doubles
Strong gains in the company’s securities unit helped propel earnings as the No. 2 brokerage benefited from robust merger activity and an extremely active stock market. Securities income more than doubled to $1.39 billion on the heels of several successful transactions, most notably the $5.47 billion initial public offering of United Parcel Service Inc. (UPS), the largest ever in the United States.
Net revenue in the securities unit -- which includes
interest income minus interest expense -- rose 57 percent to $4.14 billion. The results now also include merchant banking, or investments for the company's own account.
Income related to asset management rose 24 percent to $118 million.Net revenue, however, rose just 8 percent to $556 million. Income in the company’s credit card unit, which issues the Discover Card, rose 26 percent to $125 million. Net revenue in that unit gained 18 percent to $963 million.
Return on equity
Total net revenue for the quarter rose 43 percent to $5.7 billion. Return on equity, a measure of profitability, was a record 43.1 percent compared with 27 percent a year ago.
For the full year, net income rose 57 percent to a record $4.79 billion, or $8.20 a share, from $3.05 billion, or $4.95 a share.
Separately, Morgan Stanley's board declared a 2-for-1 stock split, payable Jan. 26 to shareholders of record Jan. 12. The company also boosted its dividend 67 percent to 40 cents a share from 24 cents. The higher dividend is payable Jan. 20 to
shareholders of record as of Jan. 12.