MORGAN Stanley, the second-biggest United States securities firm, said profit dropped 57 percent, in line with analysts' estimates, as the firm suffered declines in trading and investment banking.
Earnings from continuing operations fell to US$1.03 billion, or 95 cents a share, in the second quarter from US$2.36 billion, or US$2.24, a year earlier, the New York-based firm said yesterday. The average estimate of 19 analysts surveyed by Bloomberg News was for earnings of 92 cents a share.
Chief Executive Officer John Mack wasn't able to rely on stock traders and money managers to offset writedowns of bonds backed by real estate and leveraged loans. Lehman Brothers Holdings Inc reported its first loss in 14 years as a public company earlier this week and Goldman Sachs Group Inc said yesterday that earnings fell for a second straight quarter.
"It's just a very difficult time for these companies," said Marshall Front, chairman of Chicago-based Front Barnett Associates LLC. "Even Morgan Stanley, which we view as being well run, is running into very heavy headwinds."
Morgan Stanley dropped 24 percent in New York Stock Exchange composite trading so far this year, compared with the 23 percent decline of the 11-company Amex Securities Broker/Dealer Index. Goldman fell 17 percent and Lehman slumped 62 percent.
Banks and brokers have taken more than US$392 billion of writedowns and credit losses since the beginning of last year as mortgage-backed securities, collateralized debt obligations, leveraged loans and other fixed-income assets dropped in value. Morgan Stanley reported its first loss as a public company in December after US$9.4 billion of writedowns on mortgage-related investments.
Morgan Stanley, led by the 63-year-old Mack, announced plans last month to reduce its headcount by as much as 5 percent. The company has eliminated at least 3,000 jobs since October.
"It's going to take some time for these markets to really improve," William Fitzpatrick, an equity analyst at Optique Capital Management Inc in Racine, Wisconsin said before the earnings report. "We're expecting continued weakness across all their business units."
Morgan Stanley advised on US$191 billion worth of takeovers completed during the three months ended May 30, down from US$287 billion in the same period a year earlier, according to data compiled by Bloomberg. The firm was fifth among managers of global equity offerings during the quarter, Bloomberg data shows.