Morgan Stanley's loss tied to upbeat outlook
CHARLOTTE, N.C. - In an unusual accounting twist, Morgan Stanley posted a bigger-than-expected loss yesterday, partly because bond traders were more upbeat about the company.
The bank was hit, counterintuitively, by an improvement in the value of its own debt during the first three months of the year. That change increased the amount of the bank's obligations, triggering an accounting hit that contributed to a $578 million loss for the quarter.
"It's a funny one-time event," Tom Kersting, a financial services analyst at Edward Jones said of the rising value of Morgan Stanley's debt. "The important thing is to strip that out and look longer term."
Even after discounting the accounting-rule effect, though, the New York-based company wasn't unscathed by the ongoing market turmoil during the quarter, including the deteriorating commercial real estate market.
The company also said it lost $1.6 billion in December.
To save money going forward, the bank slashed its quarterly dividend 81 percent, to 5 cents per share from 27 cents.
Other banks - Citigroup, JPMorgan Chase & Co., Wells Fargo & Co., and Goldman Sachs Group - have been posting first-quarter results that have topped analysts' estimates, boosted in many cases by strength in their investment banking businesses. These results were somewhat reassuring to investors, but they remain concerned about upcoming loan losses this year as unemployment rises and the housing market weakens.
"Morgan Stanley's first-quarter earnings show that the current environment is still very challenging," said David Easthope, a senior analyst with the consultancy Celent. He said investors should expect Morgan Stanley to continue to focus on cutting costs and maintaining capital.
Chief financial officer Colm Kelleher said that the company remains cautious.
Kelleher reminded investors on a conference call that the quarterly results reflect a year of transition for the company.
Morgan Stanley not only has become a bank holding company, but is also closing on a joint venture with Citigroup to control 51 percent of the brokerage Smith Barney.
Morgan Stanley posted a loss available to common shareholders of 57 cents per share for the January-March period, after paying more than $400 million in dividends to preferred shareholders.
Morgan Stanley's first-quarter shortfall was sharper than analysts had expected. They predicted a loss of 8 cents per share. It was also worse than last year's comparable first quarter. In that period, Morgan Stanley earned $1.3 billion, or $1.26 per share.
Morgan Stanley reported December separately because this year it shifted to a traditional calendar as part of its change to a bank holding company.
Kelleher said although the outlook is cautious, Morgan Stanley has more than enough capital on hand. The bank would like to repay $10 billion in US government loans, pending the results of the stress tests being administered to banks, he said.