Morgan Stanley (MS) on Mar. 21 announced its sixth consecutive quarter of record revenues and earnings during the three months ended Feb. 28, as the financial services firm's new CEO John Mack continues making headway in his efforts to streamline and improve the businesses.
The New York company announced record net income of $2.67 billion during the February quarter, up 70% compared to the same period last year. Results included an after-tax gain of $109 million related to the sale of its investment management services unit Quilter Holdings Ltd. Net revenues were $11.0 billion during the quarter, up 29% year over year.
"This strong performance was in large part the result of effective, disciplined risk-taking by our team in Institutional Securities, which helped deliver record results across our sales and trading businesses," Mack said in a press release Mar. 21.
The Institutional Securities segment -- which includes services such as investment banking, stock or bond sales and trading for non-retail clients -- posted record pre-tax income of $3.0 billion, up 71% year over year.
To be sure, Morgan Stanley is a lender and investors have fretted about financial outfits' exposure to the mortgage industry during recent weeks, as subprime specialists such as Accredited Home Lenders (LEND) and Fremont General (FMT) struggle with their finances.
But Morgan Stanley has a broad array of debt-related businesses, some of which have fared very well; emerging markets, for example, posted record sales during the first quarter. Overall Morgan Stanley's fixed income sales and trading revenues rose to a record $3.6 billion, up 31% compared to the same period last year. The company says it benefited from improvements in areas like the sales of securitized products. And trading revenues were significantly higher, among other things.
"We remain somewhat concerned about MS's exposure to the subprime sector, but we believe the current market environment provides a number of catalysts," Standard & Poor's equity analyst Matthew Albrecht said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.) Noting factors like the company's trading volume, productivity and cost controls, he raised his fiscal 2007 earnings per share estimate to $8.59 from $7.80.
Since taking the reins in 2005, Mack has taken steps like reassigning staffers, creating a special team to focus on finding more investment products designed to attract wealthy investors, and expanding retail banking services and small-business lending programs (see BusinessWeek.com, 06/21/2006, "Morgan Stanley's Mack Attack" http://www.businessweek.com/print/investor/content/jun2006/pi20060621_288903.htm.) In December, Morgan Stanley announced plans to spin-off its Discover unit, described by Morningstar in recent months as "a small fish in the slowing credit card industry." Discover's first quarter pre-tax income was $372 million on a managed basis, a 22% decline year over year.
Mack isn't done yet.
"We see many opportunities to further improve our performance, and remain intensely focused on helping our clients navigate the constantly changing markets and leveraging our global franchise to create additional value for our shareholders," Mack said in the press release.
Investors bid up Morgan Stanley's stock by 4.2% to $79.27 per share in early trading on the New York Stock Exchange Mar. 21.