Morgan Stanley’s results were slightly light, but in the context of Lehman and other disasters, investors should see a silver lining. Of course, as at most financial firms (other than Goldman) the boom years are a distant memory: profits dropped 60% year over year.
Revenue of $6.51 billion fell slightly short of $7.05 billion consensus. EPS came in ahead: $0.95 vs. $0.92 (boosted by one-time gains). Equity sales and trading net revenues fell by 11% to $2.1 billion, but the real deterioration came in the firm’s fixed incomed segment, where revenues plummeted 85% to $414 million. Investment banking revenue fell 49% to $875 million. Chairman and CEO John Mack had his excuses at the ready:
Given the turbulent environment this quarter, we stayed close to shore and continued strengthening the Firm’s capital and liquidity positions. Average total liquidity over the course of the quarter was $135 billion and we finished the quarter with $169 billion in total liquidity. The difficult market conditions and lower levels of client activity impacted our results, particularly in fixed income and asset management. However, Morgan Stanley’s diversified business mix benefited the Firm, with solid results in wealth management, prime brokerage, equity derivatives and our world-class international franchise. The careful management of our capital, risk and liquidity leaves us well positioned to continue serving Morgan Stanley’s clients and seize attractive risk-return opportunities as we see them.
Average total liquidity increased to $135 billion and leverage and adjusted leverage ratios fell to 25.1x and 14.1x respectively.
We will be covering the conference call live at 11:00 ET.