Morgan Stanley Q2 earnings plunge 56%

Morgan Stanley yesterday said quarterly earnings plunged 56 per cent on trading losses and slowdown in investment banking, despite $1.43 billion (Dh5.25bn) of pretax gains from asset sales.

The second-largest US investment bank reported income from continuing operations of $1.03bn, or 95 cents a share, for its fiscal second quarter, ended May 30, down from $2.36bn, or $2.45 a share, a year earlier.

Net revenue fell 38 per cent to $6.5bn from last year. The results beat the average analyst forecast of 92 cents a share, according to Reuters estimates.

The company received a big boost from two one-time items: a $698 million pretax gain from the sale of its Spanish wealth management business and $732m pretax gain from the secondary offering of MSCI Inc stock.

"If you have to go all the way to Spain to make numbers, it's not good. How many more rabbits do they have in their hat? What's going to be the driver of earnings growth going forward?" said Matt McCormick, a stock analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

These gains helped offset $245m of severance related to job cuts, $436m of losses from proprietary mortgage trades and $519m of net losses on leveraged loans.

A breakdown in debt markets last year continues to hurt banks and brokers, which have been forced to write down more than $400bn of assets, slash jobs and raise new capital. Morgan Stanley suffered $9.4bn of fourth-quarter subprime trading losses and then reported first-quarter earnings that fell by half.

Revenue dropped in almost every business. Investment banking fees fell by half. Fixed income trading net revenue sank by 85 per cent, reflecting the mortgage losses as well as reductions in other markets.

Meanwhile, real estate investment losses led to a pretax loss of $277m in Morgan's asset management division. Excluding the Spanish unit sale, wealth management revenue rose 4 percent from last year.

Morgan follows rival Lehman Brothers, which on Monday reported a disappointing $2.8bn loss. Goldman Sachs Group on Tuesday said its profit fell by 11 per cent amid relatively light losses. Shares of Morgan Stanley have fallen 24 percent this year, lagging the Amex Securities Broker-Dealer Index and the broader S&P 500 Index.