|
Morgan Stanley profit falls
|
 |
June 21, 2001: 3:53 p.m. ET
Broker still beats 2Q forecasts despite lower earnings and revenue
|
NEW YORK (CNNfn) - Morgan Stanley became the latest Wall Street brokerage house to report sharply lower profits in its fiscal second quarter, although the firm beat forecasts Thursday.
Morgan Stanley (MWD: up $5.60 to $64.95, Research, Estimates) earned $930 million, or 82 cents a share, down more than a third from the $1.5 billion, or $1.26 a share, it earned a year earlier. Analysts surveyed by earnings tracker First Call were looking for earnings per share of 79 cents in the period ended May 31.
Net revenue, which reflects revenue less interest expense, fell 15 percent to $6 billion.
Morgan Stanley's lower earnings follow lackluster results at other brokerage firms as the slowing economy continues to chip away at investors' portfolios. Many have significantly reduced investment activity or have withdrawn from the markets altogether until the Federal Reserve's five interest rate cuts this year take effect and begins to turn the economy around.
The company's securities business posted a 42 percent decline in net income from a year earlier, reflecting significantly lower investment activity in the quarter by both individual and institutional investors.
News of Morgan's (MWD: up $5.60 to $64.95, Research, Estimates) strong earnings helped its shares surge more than seven percent Thursday while Goldman Sachs (GS: up $4.60 to $93.00, Research, Estimates) rose more than five percent and Lehman Brothers (LEH: up $2.36 to $78.26, Research, Estimates) gained nearly three percent. Bear Stearns Cos. (BSC: up $2.47 to $57.60, Research, Estimates), which also beat expectations this week, jumped more than four percent in afternoon trading.
And the winner is...
Morgan exceeded Wall Street expectations while its fixed income group posted a record quarter. However, the venerable Wall Street bank, along with rival Goldman Sachs, continues to be hit by the slowdown in merger and acquisition activity and equity underwriting, said analyst Joel Gomberg, of William Blair & Co.
The value of initial public offerings (IPOs) dropped 59 percent to $12 billion in the second quarter, according to Thomson Financial Securities Data. M&A underwriting has also plunged nearly 55 percent this quarter, Gomberg said.
Morgan said Thursday that advisory revenue plummeted 55 percent in the quarter compared with a year earlier as a result of sharply lower merger and acquisition activity. Underwriting revenue declined 29 percent, reflecting fewer initial public offerings. Asset management and credit services income also fell in the quarter.
By comparison, Goldman Sachs reported Tuesday that revenue from investment banking, its key revenue producer a year ago, fell more than half to $784 million from $1.59 billion a year earlier.
"Morgan is an equity shop and a big investment bank," said analyst Ken Worthington of CIBC World Markets Corp. "Morgan and Goldman Sachs both have a very big technology business and that business had more to lose in the downturn."
Click here for a look at financial stocks
By comparison, smaller rival Lehman Brothers, which focuses more on fixed income and mortgage backed securities, has fared better.
Lehman Brothers surprised Tuesday when it said it earned $387 million, or $1.38 a diluted share, in the period, just below the $1.39 a share it earned a year earlier. Excluding results of a special participating preferred dividend, earnings increased to $437 million, or $1.57 a diluted share, in the most recent quarter, although earnings tracker First Call said the $1.38 EPS figure is the one that compares to forecasts.
"Lehman is the winner so far this quarter," Worthington said. "Lehman has a bigger fixed income business proportional to the size of the company."
Long considered a black sheep, Lehman Brothers posted a strong "return on equity" (ROE) of 23.4 percent, bettering Morgan's ratio of 19 percent.
The Federal Reserve's aggressive rate cuts have helped the fixed income markets which means a boost for Lehman. "They had very strong results relative to the environment," Gomberg said. 
|
|
|
Bear Stearns beats lower 2Q forecast - June 20, 2001
Lehman beats, Goldman meets 2Q targets - June 19, 2001
Morgan pitches merger to AmEx, report says - June 11, 2001
Morgan Stanley to trim 1,500 from work force - Apr. 24, 2001
Brokers' profits fall as 2 miss targets - Mar. 21, 2001
Morgan short, Goldman ahead - Dec. 19, 2000
|
|
|
|
Morgan Stanley
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
