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Morgan Stanley 4Q drops
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December 19, 2001: 12:57 p.m. ET
Brokerage's profit sharply lower but tops expectations on cost control.
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NEW YORK (CNN/Money) - Morgan Stanley & Co. posted a 28 percent drop in fiscal fourth-quarter earnings Wednesday, yet shot past Wall Street expectations as one of the nation's biggest brokerage firms slashed costs amid a down economy that slowed business to a crawl.
Companies and individuals sharply scaled back trading activity as the economy slid into a recession after the Sept. 11 terrorist attacks, putting pressure on the entire securities industry. Merger activity also slowed to a crawl as companies put off deals until market conditions become more favorable.
In an effort to save the bottom line, Morgan slashed more than 1,000 jobs in the fourth quarter, reducing its staff to about 61,300, Chief Financial Officer Steve Crawford said during a conference call with reporters Wednesday.
Nevertheless, the company remained upbeat about the future.
"We feel that the trends ... have bottomed, and we're probably going to move up from here," Crawford said.
Merrill Lynch analyst Judah Kraushaar agreed that the worst may be behind Morgan Stanley, and he said the company could be positioned for better revenue growth ahead.
"Indeed, we continue to believe the fourth quarter will mark the trough for revenues - a firming economy could support a decent recovery next year," Kraushaar said in a research note ahead of the company's conference call Wednesday.
Kraushaar maintained his "strong buy" rating on the company, based on his expectation for an improvement to revenue in the securities industry in 2002.
For the quarter ended Nov. 30, Morgan Stanley (MWD: up $2.03 to $55.59, Research, Estimates), which also owns the Discover credit card, reported earnings of $870 million, or 78 cents a share, down from $1.2 billion, or $1.06 a share, a year earlier. Analysts polled by earnings tracker First Call expected a profit of 66 cents a share.
The company also posted a 33 percent drop in full-year earnings but beat estimates with income of $3.6 billion, or $3.19 a share, down from $5.5 billion, or $4.73 a share, a year ago. Analysts on average forecast full-year earnings of $3.07 a share, according to First Call.
Revenue in the quarter fell 17 percent to $4.6 billion from $5.5 billion and dropped 16 percent to $21.9 billion for the year.
Morgan's shares soared on the better-than-expected earnings news, rising almost 4 percent to $55.52 in early afternoon trading Wednesday.
Morgan slashed compensation costs 20 percent in the fourth quarter to $1.4 billion from $1.8 billion a year earlier as it cut staff and reduced expenses.
The company's securities business logged a 42 percent drop in net income to $2.3 billion for fiscal 2001, with net revenue falling 20 percent, reflecting substantially lower trading activity. In the fourth quarter, securities posted a 41 percent decline.
Institutional sales and trading net revenue fell 3 percent from a year earlier.
Investment banking also took a hit with advisory revenue down 44 percent from a year ago, reflecting a sharp decline in global mergers and acquisitions activity that began in the second half of last year. Global completed M&A volume fell 53 percent in the quarter from a year ago.
Underwriting revenue fell 12 percent in the quarter.
Credit services revenue, mainly from Discover Card, increased 31 percent in the quarter to $193 million from a year earlier.
"This has been a difficult year, with the economic downturn and the extraordinary events of Sept. 11," Chairman Philip Purcell and President Robert Scott said in a joint statement Wednesday. "We have focused on reducing expenses throughout 2001 and we will continue this effort in 2002. While the economic environment remains uncertain, we continue to benefit from the diversity of our businesses." 
from staff and wire reports
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