Morgan Stanley misses estimates as trading revenue plunges

Morgan Stanley (Getty Images) Morgan Stanley (Getty Images)

July 19 (Bloomberg) -- Morgan Stanley reported a 50 percent drop in earnings and said it will cut more jobs as revenue from trading stocks and bonds declined the most among Wall Street banks.

Second-quarter profit was $591 million, or 29 cents a share, compared with $1.19 billion, or a loss of 38 cents, a year earlier, the New York-based company said today in a statement. Excluding accounting adjustments, profit was 16 cents a share, below the 29-cent average estimate of 20 analysts surveyed by Bloomberg.

The 48 percent drop in trading revenue, which plunged to the lowest level since Chief Executive Officer James Gorman, 54, took over in January 2010, compares with an increase of more than 11 percent at Goldman Sachs Group Inc. Morgan Stanley said clients shied away from doing business with the firm while Moody’s Investors Service weighed a credit-rating downgrade.

The fixed-income results were “very weak,” said Charles Peabody, an analyst at Portales Partners LLC in New York who rates the stock sector perform. “Strength tends to beget strength and weakness weakness, so I think on the fixed-income side they’re going to end up being a loser.”

Morgan Stanley fell 2.8 percent to $13.60 at 9:38 a.m. in New York. The shares were down 7.5 percent this year through yesterday, after falling 44 percent in 2011, and are 53 percent below where they traded when Gorman took over. The stock is trading at about half the firm’s liquidation value and has dropped the most this year of any of the 10 largest U.S. banks.

Job Cuts

The firm has already cut 3,272 jobs since the start of 2012 and expects that number to climb to 4,000 by year’s end, Chief Financial Officer Ruth Porat said in an interview. Reductions will be gradual and some may come from attrition, she said.

Revenue dropped to $6.95 billion from $9.21 billion a year earlier. Book value per share rose to $31.02 from $30.74 at the end of March. The firm’s return on equity, a measure of how well it reinvests earnings, was 4 percent, below Gorman’s goal of 15 percent.

Second-quarter revenue from fixed-income sales and trading, which is run by Ken deRegt, along with commodity trading co- heads Colin Bryce, and Simon Greenshields, all 56 years old, was $770 million, excluding the accounting gain. That missed estimates of $1.1 billion from Citigroup Inc.’s Keith Horowitz, and $1.39 billion from Barclays Plc’s Roger Freeman.

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