Morgan Stanley rose to the highest in almost three months in New York trading after reporting a smaller fourth-quarter loss than analysts estimated on gains in equities trading.
The shares climbed 93 cents, or 5.4 percent, to $18.28 at 4 p.m., the highest since Oct. 28. The firm’s net loss was $250 million, or 15 cents a share, compared with profit of $836 million, or 41 cents, a year earlier, the New York-based company said today in a statement.
Morgan Stanley posted the only increase in trading revenue excluding accounting gains among the five largest Wall Street banks in 2011, making progress toward Chairman and Chief Executive Officer James Gorman’s goal of boosting market share. The firm still had per-share losses in two of the past three quarters as it took charges to eliminate swap contracts purchased from MBIA Inc. and to convert Mitsubishi UFJ Financial Group Inc.’s preferred stake to common shares.
“Their institutional business is performing quite well relative to the other firms,” Brad Hintz, an analyst at Sanford C. Bernstein & Co., said in an interview on Bloomberg Television’s “InBusiness.” “On the trading side, their equity business was very strong.”
The loss from continuing operations was 14 cents, compared with the 57-cent average estimate of 22 analysts surveyed by Bloomberg.
Morgan Stanley’s shares gained 6.8 percent yesterday after Goldman Sachs Group Inc. reported profit that beat estimates on compensation cuts. JPMorgan Chase & Co., the biggest U.S. bank by assets, fell 2.5 percent on Jan. 13, when it reported trading revenue dropped 11 percent from the third quarter, excluding accounting adjustments.
“The bar is pretty low” for Morgan Stanley, said Ralph Cole, a senior vice president in research at Ferguson Wellman Inc. in Portland, Oregon, which manages $2.8 billion. “It’s partly how they look compared to competitors. If they can show less weakness than their peers, that appears to be strength.”
Revenue at Morgan Stanley dropped 26 percent to $5.71 billion from a year earlier. Book value per share rose to $31.42 from $31.29 at the end of September.
Fourth-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, was negative $257 million. Excluding the MBIA charge and the effect of accounting gains tied to the firm’s credit spreads, revenue was about $1.2 billion. That was higher than the $1.09 billion posted in the third quarter and $813 million in the fourth quarter of 2010.
Fixed-income trading revenue included about $600 million related to the restructuring of derivatives tied to so-called peripheral European countries. The transaction reduced the firm’s risks before hedges by $3.38 billion, by lowering net counterparty exposure related to Italian sovereigns, Morgan Stanley Chief Financial Officer Ruth Porat said in an interview.
Fixed-income revenue, excluding accounting gains and losses known as DVA, was $2.63 billion at JPMorgan, $1.72 billion at Citigroup Inc. and $1.36 billion at Goldman Sachs. All three firms are based in New York.
In equities trading, headed by Ted Pick, Morgan Stanley’s revenue was $1.28 billion, excluding DVA, up from $1.18 billion in the fourth-quarter of 2010. That compared with the third quarter’s $1.34 billion, and with $1.69 billion at Goldman Sachs and $806 million at JPMorgan.
“We had broad-based market-share gains in equities, and very strong performance this quarter in cash equities and electronic trading,” Porat said.
Morgan Stanley generated $883 million in fourth-quarter revenue from investment banking, which is overseen by Paul J. Taubman. That figure, down 42 percent from a year earlier, included $406 million from financial advisory, $189 million from equity underwriting and $288 million from debt underwriting.
Global wealth management, overseen by Greg Fleming, posted pretax income of $244 million, down from $390 million in the fourth quarter of 2010. The division’s pretax profit margin fell to 8 percent from 10 percent in the first nine months of 2011. Gorman has said the unit should eventually post a pretax profit margin of more than 20 percent.
Purchasing an additional 14 percent stake in the Morgan Stanley Smith Barney brokerage joint venture with Citigroup is a “core plank” of the firm’s strategy, Gorman said today on a conference call with analysts. Whether the firm moves immediately on that purchase when it becomes available later this year will partly depend on price, he said.
Asset management reported a pretax gain of $78 million, down from $353 million in the previous year’s period.
“We ended the year in better shape than where we started and we are well positioned to deliver improved returns to shareholders in 2012 and beyond,” Gorman, 53, said in the statement.
Compensation and benefits decreased 6 percent from the year-earlier quarter to $3.81 billion, or 67 percent of the firm’s overall revenue. The ratio was higher than in the fourth quarter of 2010, when the bank set aside 52 percent of revenue.
Concern that Europe’s sovereign-debt crisis would spread led to lower trading and fewer deals in the fourth quarter. While the Standard & Poor’s 500 Index rose 11 percent in the period, the biggest jump in more than two years, average daily volume on major U.S. exchanges dropped 15 percent from the third quarter.
Morgan Stanley responded by cutting headcount and deferring more employee compensation, including a December announcement that it’s eliminating 1,600 jobs. It told employees this week that immediate cash bonuses would be capped at $125,000, with amounts beyond that deferred over two years, according to a person briefed on the plans.
Compensation and costs “are things that they have some control over, and they’re doing what they can in this tough revenue environment,” Roger Freeman, an analyst at Barclays Capital, said in an interview on Bloomberg Television’s “InBusiness” before earnings were released. Freeman has a “neutral” rating on Morgan Stanley’s stock.
Morgan Stanley took a pretax charge of $1.74 billion related to a settlement reached last month with bond insurer MBIA. The settlement canceled credit-default swaps bought by Morgan Stanley from MBIA and ended lawsuits between the two firms.
Morgan Stanley’s exposure to MBIA, and its attempts to hedge those risks, resulted in losses of about $3 billion since the start of 2008, not including the charge taken in the fourth quarter. The settlement will increase Morgan Stanley’s capital, boosting the Tier 1 common ratio under new rules by about 75 basis points, the bank said last month.
“The settlement with MBIA put our last major legacy issue behind us while freeing up $5 billion in capital,” Porat said.