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Morgan Stanley posts loss on settlement, but narrower than analysts expected
NEW YORK (AP) ' New York investment bank Morgan Stanley posted a fourth-quarter loss of $275 million Thursday, a reversal from its gain of $600 million a year ago.
But the loss, equivalent to 15 cents per share, was far smaller than the 43-cent loss that Wall Street had predicted. Relieved investors sent Morgan Stanley's shares up 5 percent before the market opened.
The loss stemmed from Morgan Stanley's settlement last month with bond insurer MBIA, an agreement that slashed earnings by 59 cents per share. MBIA had accused Morgan Stanley of being misleading about the quality of commercial mortgage-backed securities it wanted insured.
Morgan Stanley and other banks accused the insurer of restructuring itself to avoid paying claims the banks made. While the settlement took a deep hit on quarterly results, Morgan Stanley portrayed it as a step in cleaning up its balance sheet.
CEO James Gorman said in a statement that Morgan Stanley has been "addressing a number of outstanding strategic and legacy issues" for the past year, and is now "well positioned to deliver improved returns to shareholders in 2012 and beyond."
Like its peers, Morgan Stanley has been trimming expenses and cutting jobs as the economy continues to struggle. It's also figuring out how to redefine itself as new government regulations crimp former sources of revenue, including some complicated investment vehicles and trading for its own profit.
Quarterly revenue of $5.7 billion was down from $7.7 billion a year ago. The bank's institutional securities unit swung to a loss. It also posted a 68 percent decline in revenue, as nervous clients held off on underwriting new deals or pursuing mergers. The institutional securities unit, the bank's largest, helps clients with investment banking services like packaging securities and trading currencies.
Though investment banking is always volatile, the risks are more pronounced at Morgan Stanley. Unlike some of its rivals, like JPMorgan Chase & Co. and Bank of America Corp., Morgan Stanley doesn't have a large consumer deposit base or much plain-vanilla lending to rely on when its investment bank stumbles.
Gorman, who became CEO in 2010, has been slimming down the bank, selling off units like a mortgage servicing division and an asset management business. He's been emphasizing divisions like wealth management, which provide smaller returns than some investment banking operations used to but also carry a lot less risk because they're based on fees rather than markets.
Despite those efforts, Morgan Stanley's wealth management unit struggled in the quarter. Revenue fell 3 percent and profit fell 20 percent for the unit, which offers financial planning for wealthy individuals and small to medium-sized businesses. Asset management, which manages investment portfolios, also reported lower revenue and profits, thanks in part to souring investments in real estate.
Morgan Stanley's stock jumped 6 percent in pre-market trading.