Morgan Stanley swings to $177m loss

Morgan Stanley swings to $177m loss
By Alan Rappeport in New York
Copyright The Financial Times Limited 2009
Published: April 22 2009 13:57 | Last updated: April 22 2009 13:57
http://www.ft.com/cms/s/0/2a7f6eb0-2f32-11de-b52f-00144feabdc0.html


Morgan Stanley reported a loss of $177m in the first three months of the year on Wednesday, worse than analysts expected, and said it would cut its quarterly dividend as real estate investments sapped its profits.

Net income swung to a loss of 57 cents a share compared with earnings of $1.26 a share, or $1.4bn, during the same period a year ago. Analysts were predicting a loss of 8 cents a share.

Morgan Stanley said it would cut its dividend to 5 cents in an effort to preserve capital.

First quarter revenues were down by 62 per cent to $3bn in the first quarter. Analysts were expecting Morgan Stanley to produce $5.1bn in revenue.

The results were dragged down by $1bn in losses on real estate investments and tightening credit spreads for some of its long-term debt, which pulled revenues back by $1.5bn.

“Morgan Stanley would have been profitable this quarter if not for the dramatic improvement in our credit spreads - which is a significant positive development, but had a near-term negative impact on our revenues,” John Mack, Morgan Stanley’s chief executive, said in a statement.

The investment banking business was a bright spot, gaining $800m in the first quarter. Morgan Stanley said it ranked first in global mergers and acquisitions activity during the period.

”In this volatile environment, we have focused on prudent stewardship of our balance sheet, capital and risk profiles, as evidenced by our exceptional capital ratios,” Mr Mack said.

Morgan Stanley’s Tier 1 capital ratio was 16.4 per cent in the first quarter. It had $210.9bn in total capital as of March 31 and has not repurchased any shares of its own common stock this fiscal year.

Its shares fell by 7.91 per cent to $22.70 in pre-market trading on Wednesday.

Separately on Wednesday Wells Fargo reported record first quarter profits of $3.05bn, or 56 cents a share, due to strong performance in its mortgage banking business and a smoother-than-expected integration with Wachovia, which it acquired last year.

The San Francisco-based bank produced $21bn in revenue during the first three months of the year, a 16 per cent increase from same period a year ago. Wachovia contributed 41 per cent of the combined revenue.

“The best way to generate capital is to earn it,” said John Stumpf, Wells Fargo’s chief executive, in a statement.

Wells said that Tier 1 capital ratio grew from 7.84 per cent to 8.28 per cent in the first quarter. Its tangible common equity – a measure of financial health – rose from 2.86 per cent to 3.28 per cent.

The bank said that it had extended $225bn of credit to US taxpayers since last October, which is nine times what it received from the US Treasury’s capital investment scheme. Mr Stumpf indicated last month that operating results for the first two months of the year had been strong, adding that the US Treasury’s $25bn capital investment in the bank was generating a return for the US taxpayer at significant cost to Wells Fargo.

Wells Fargo’s share price fell by 4.68 per cent to $17.93 in pre-market trading on Wednesday.