Morgan Stanley back in black

After three consecutive losses, Morgan Stanley posts its first quarterly profit in a year as its CEO prepares to depart.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Colin Barr, senior writer

chart_morgan_stanley3.03.gif
mack.mkw.gif
Morgan Stanley shares have bounced back this year but lag far behind those of rival Goldman.

NEW YORK (Fortune) -- Morgan Stanley posted its first quarterly profit in a year.

The New York-based investment firm said Wednesday it earned $757 million, or 38 cents a share, for the third quarter. That's down sharply from the year-ago profit of $7.7 billion, or $7.38 a share. But it was much better than the 30 cents per share profit that analysts surveyed by Thomson Reuters were expecting.

Revenue fell to $8.7 billion from $18 illion a year earlier. Revenue at the global wealth management unit nearly doubled, to $3 billion, but revenue at the institutional securities business plunged 69% to $5 billion.

The firm, which has been focusing on building the global wealth business, said its investment banking business was strong, but revenue at two trading units was hit by accounting charges tied to the increasing value of the firm's debt as credit markets strengthened.

"Morgan Stanley continued to build momentum across our business this quarter, as we made important progress in executing key strategic initiatives," CEO John Mack said.

The results pleased investors who had been nervous heading into Wednesday morning, given the firm's poor results in recent quarters. Since the old Wall Street melted away last fall, Morgan Stanley (MS, Fortune 500) had posted three straight quarterly losses totaling $13 billion.

"We expect this to be somewhat of a relief and the stock to do relatively well," Deutsche Bank analyst Michael Carrier wrote in a Wednesday morning note to clients.

Carrier added that while the company has "more work to do," he is pleased with the progress. He said that gains in fixed-income trading revenue and merger-and-acquisition advisory income were both positives.

Morgan Stanley shares rose 6% in midmorning trading to $34.61.

Like other Wall Street titans, Morgan suffered the consequences of loading up on risk during the credit bubble earlier this decade. But unlike some rivals, Morgan has missed out on much of the trading rally that fueled this year's banking revival.

Now Morgan is trying to remake itself. Earlier this year, it and Citigroup (C, Fortune 500) set up a global wealth-management joint venture that they said would have 18,500 brokers and 6.8 million customers. On Tuesday, the firm agreed to sell retail asset-management units -- including Van Kampen Investments -- to investment manager Invesco (IVZ).

But the highest-profile change took place last month, when CEO John Mack said he would step aside. Mack had returned in 2005 to run the firm four years after he was shoved aside in a clash with then-chief Phil Purcell.

James Gorman, who has been head of the wealth management business, will take over Jan. 1.

Though Mack earned plaudits for steering Morgan Stanley through last year's financial maelstrom, the firm's stock has dropped 18% since June 30, 2005, when Mack took the reins.

Over the same period, shares of Goldman Sachs (GS, Fortune 500) have risen more than 80%. Goldman is the lone Wall Street rival that's still standing, after Lehman Brothers and Bear Stearns collapsed and Merrill Lynch was absorbed by Bank of America. (BAC, Fortune 500)

By the same token, by missing out on massive profits, Morgan Stanley has managed to sidestep much of the fervor over Wall Street pay spurred by Goldman's giant bonus pool.

Goldman said last week it has set aside $16.7 billion this year to pay its workers -- which puts it on track to match its record 2007 bonus payout.

Because of Morgan Stanley's poor performance in recent quarters, it is apt to churn out much less impressive compensation figures. So far in 2009, Morgan Stanley has set aside $10.9 billion for employee pay -- down 9% from a year ago.

Still, because investment banks on Wall Street typically hand out half their revenue in pay, Morgan Stanley workers are hardly going hungry.

A July report from the New York attorney general's office noted that Morgan earned $1.7 billion last year -- but paid out $4.8 billion in bonuses and also took $10 billion in bailout money from the Treasury. It repaid those loans in July. To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.