MORGAN STANLEY yesterday broke a run of good first-quarter results from US banks by announcing a larger-than-expected loss and slashing its dividend in an effort to conserve capital for tough times ahead.
The Wall Street bank’s $578 million (€444.5 million) loss, which compared to a $1.3 billion profit a year ago, was in stark contrast with the earnings produced by Wells Fargo. The San Francisco-based lender confirmed earlier guidance and announced record quarterly earnings of $3 billion, in spite of the rising credit losses.
Morgan Stanley’s results and the 80 per cent cut in its dividend underlined the challenges it faces as it reduces risk, shrinks its balance sheet and increases its presence in less volatile businesses such as wealth management.
The strategy has been championed by John Mack, chief executive, since the crisis forced Morgan Stanley to become a bank holding company in order to receive government aid last year.
Colm Kelleher, chief financial officer, said that in spite of the tough quarter – and a $1.3 billion loss in December, which was reported separately because of a change in the financial year end – the bank’s franchise and capital positions were strong.
“We are alive and kicking. Rumours of our death have been greatly exaggerated,” he said. “I don’t think there is a silver bullet to solving this market, and at present there is no sin in being boring.”
Mr Kelleher added that the company would like to repay the $10 billion in federal aid it received last year, if regulators allow it after they complete stress tests of the banks’ financial health.
Mr Mack said the bank would have been profitable without a $1.5 billion accounting charge caused by a rise in the price of its debt. In the same period last year it recorded a $1 billion gain on the value of its debt.
This year’s first-quarter results were also hit by a $1 billion writedown on Morgan Stanley’s large real estate portfolio, which includes $17 billion of loans and securities in the troubled market for commercial property, and losses on its exposure to eastern European countries that have suffered recent credit downgrades.
Following similar moves by rivals, Morgan Stanley cut its quarterly dividend to 5 cents from 27 cents. – Copyright The Financial Times Ltd 2009
