Morgan Stanley Suffers $578 Mil. Loss on Rise in Creditworthiness
Morgan Stanley posted a bigger-than-expected quarterly loss to common shareholders of $578 million, hurt partly by the deteriorating commercial real estate market.
The bank was also hit, counterintuitively, by an improvement in the value of its own debt in the first quarter. This improvement essentially increased the amount of debt on Morgan Stanley’s books.
The New York-based bank posted a loss of 57 cents per share for the January to March period, after paying more than $400 million in dividends to preferred shareholders.
It also lost $1.6 billion in December, and slashed its quarterly dividend to 5 cents per share from 27 cents.
Shares fell 9 percent in pre-market trading.
Morgan Stanley reported December separately, because this year the company shifted to a traditional calendar quarter. Its fourth quarter for the previous fiscal year included September, October and November.
Morgan Stanley’s first-quarter shortfall was sharper than analysts expected. They predicted a loss of 8 cents per share.
It was also worse than last year’s comparable first quarter. In that period, Morgan Stanley earned $1.3 billion, or $1.26 per share.
Morgan Stanley lost $1 billion in the latest quarter from its investments in real estate, and lost $1.5 billion because its own debt gained in value as investors grew more confident about the bank’s creditworthiness compared with late last year, right after Lehman Brothers collapsed.
So if Morgan Stanley had to buy its debt back at the end of the first quarter, it would have had to pay more for it than it would have at the end of last year. And accounting rules require this change to be recorded as a loss.
This was the opposite of what happened to some other banks in the first quarter — Citigroup was able to record a $2.7 billion gain because investors grew more worried about its creditworthiness, and in turn, reduced the debt on Citigroup’s books.
“Morgan Stanley would have been profitable this quarter if not for the dramatic improvement in our credit spreads — which is a significant positive development, but had a near-term negative impact on our revenues,” said Chairman and CEO John Mack.
He added that the bank saw strong results in investment banking, commodities, interest rates and credit products.
Other banks — Citigroup Inc., JPMorgan Chase & Co., Wells Fargo & Co., and Goldman Sachs Group Inc. — have been posting first-quarter results that have topped analysts’ estimates. These results were somewhat reassuring to investors, but they remain concerned about upcoming loan losses this year as unemployment rises and the housing market weakens.
4/22/2009 9:40 AM NEW YORK