Morgan Stanley reported a fourth-quarter loss of $2.36 billion — or $2.34 a share — on Wednesday, as the bank remained battered by old investments.þþThe quarter was Morgan’s first loss this year, though it did not outweigh the profit earned earlier this year. Morgan reported a full-year profit of $1.59 billion, or $1.54 a share.þþRevenue in every corner of the bank fell, even when compared with last quarter, showing a deteriorating environment that cut across businesses. Analysts polled by Thomson Reuters had forecast a loss of 34 cents a share. The loss from continuing operations for the quarter, which does not include Discover, the credit card unit that was spun off, was $2.20 billion, or $2.24 a share.þþ“I was very disappointed with what Morgan Stanley had to report,” Ada Lee, an analyst with Sterne Agee, said. “I just don’t know how this organization got to this point.”þþMs. Lee said she was wrong to have issued a positive report on Morgan’s prospects last month. She said she did not appreciate the bank’s continued exposure to toxic assets at the time. The bank’s expenses are bloated, she said, and a turnaround could be years away.þþIn a statement, the bank’s chief executive, John J. Mack, pointed to the financial crisis but said Morgan Stanley was aggressively repositioning itself.þþ“These exceptional market conditions profoundly impacted our performance this year, especially in the fourth quarter,” Mr. Mack said. “The environment will continue to be challenging. But we have successfully evolved and adapted our business across numerous cycles and the current market dislocation gives us openings.”þþIn response to the earnings release, Moody’s downgraded Morgan’s long-term senior debt rating to A2 from A1 because of the deterioration of its businesses. Morgan shares were down 2 percent, to $15.81, in late morning trading,þþThe bank is attempting to chart a new course as a deposit-taking institution, which will provide new types of earnings as well as a steady base of financing for some of the bank’s operations. But the makeover includes a retrenchment from areas that once provided handsome profits like proprietary trading, principal investing and prime brokerage, the business that services hedge funds. þþMorgan — and its closest rival, Goldman Sachs — have yet to prove they can find new ways to churn out high profits again in the new environment. Goldman reported a quarterly loss of $2.1 billion on Tuesday, its first loss ever. Investors pushed Goldman’s stock upward on the news, because the loss was not as bad as some had feared.þþMuch of Morgan’s woes continue to relate to investments it made before the credit crisis began. The bank continued to take losses on those all year, but in the last three quarters, revenues outweighed those losses. In the fourth quarter, the worst losses came from mortgage investments, private equity and real estate. þþThe bank’s loss this quarter was less than its fourth-quarter loss last year of $3.6 billion, or $3.61 a share, when Morgan took the bulk of its mortgage write-downs. But profit this year was down overall 49 percent — to $1.59 billion — from last year, when it was $3.14 billion. þþMorgan’s pain was most concentrated in the bank’s asset management unit, where revenues were negative $386 million, down 160 percent from the third quarter. The unit was stung by a $187 million loss related to structure investment vehicles on its balance sheet and write-downs on real estate and private equity in its merchant bank. It also took a $243 million impairment charge on its Crescent real estate subsidiary. And customers also pulled out $76.5 billion of assets from the unit, leaving Morgan with a much lower fee revenue.þþThe institutional securities group also suffered from write-downs, recording revenue of $844 million, down 86 percent from the third quarter. The tally of losses included: $1.2 billion on mortgage assets, $1.1 billion of write-downs on loans related to buyout commitments and $1.8 billion in loses in real estate and other investment funds. And revenue in businesses like underwriting, equity sales and credit products remained lower than a year ago. þþThe global wealth management unit showed the least decline with $1.422 billion in revenue, down 9 percent from the third-quarter. This unit includes Morgan’s brokerage network, which the bank has been trying to grow. The unit took $364 million in charges related to auction rate securities that the bank agreed to repurchase from customers earlier this year. þþAnd, reversing a three quarter trend of growth, the broker’s unit had net client outflows of $3.9 billion. Through the third quarter, the unit had attracted $38 billion in new client assets at a time customers were pulling money from elsewhere, and the outflow in the fourth-quarter raises questions over whether the growth will continue next year. Morgan appointed two executives from Wachovia last month to oversee its deposit base, which it hopes to grow in part through its brokerage network. The bank is also hoping to purchase small banks around the country.þþMorgan is also planning joint strategies with its most recent investor, Mitsubishi UFJ, a large bank in Japan. But details of the partnership have not been released yetþ
Source: NY Times
