Morgan Stanley Posts Smaller-Than-Expected Loss (Update 2)

Morgan Stanley results updated with share price, additional information and analyst commentary.

• Morgan Stanley reported a fourth-quarter loss of 14 cents per share.
• Revenue came in at $ 5.7 billion.
• Analysts expected a loss of 57 cents per share on revenues of $5.565 billion, according to consensus estimates from Thomson Reuters

NEW YORK (TheStreet) -- Shares of Morgan Stanley (MS) were up more than 5% Thursday after it posted a smaller-than expected fourth quarter loss, with revenues coming in slightly ahead of estimates on the strength of its equity trading.

The investment bank reported a fourth-quarter loss from continuing operations of $227 million or 14 cents per share, compared to a year-ago profit of $871 million or 44 cents per share. The results included a 59 cent loss arising out of its previously-announced settlement with mortgage insurer MBIA (MBI).

Revenues came in at $5.7 billion in the fourth quarter, down 42% from the previous quarter and 26% from the year-ago quarter. Excluding the accounting gains/losses from changes in the value of the firm's debt and the MBIA loss, fourth quarter revenue came in at $7.2 billion, up 12% over the third quarter.

Analysts expected a net loss of 57 cents per share, according to consensus estimates from Zacks Investment Research. Revenues were forecast to come in at $5.57 billion according to consensus estimates from Thomson Reuters.

Analysts hailed the firm's strength in equity trading. Excluding accounting gains and losses, revenues declined only 5% sequentially, and up 8% year-on-year. CFO Ruth Porat said that the equities business saw resilient client flows and that cash and electronic trading volumes outperformed the market.

Fixed income trading was disappointing. Excluding accounting gains and the MBIA charge, revenues sank 45% sequentially. Investment banking revenues rose 2% quarter-on-quarter.

For the full year, revenues inched up 3% to $32.403 billion, helped by a accounting gain of $3.7 billion.

Morgan Stanley set aside a total $16.4 billion in compensation for the company overall, a 3% increase from the previous year. At the end of the fourth quarter, the investment bank had a workforce of 61,889, down by about 1% from the year before.

Compensation expenses within the trading and investment banking business also moved higher by 3% in 2011, contrary to the trend in other banks such as JPMorgan Chase (JPM) and Goldman Sachs (GS), where compensation declined by 36% and 21% respectively.

Compensation to revenue ratio for the division stood at 42%, compared to 42.4% at Goldman Sachs and 34% at JPMorgan. Excluding the DVA gains and MBIA charge, the compensation-to-revenue ratio would have been 47%.

Management said over the conference call that bonuses had been cut significantly in 2011, but that deferred compensation from previous years and severance expenses had kicked up the overall figure.

The company recently announced that it would lay off 1600 employees by the end of the first quarter in response to the challenging economic and revenue environment.

James Gorman, chairman and CEO said the investment bank resolved important legacy issues during the year and made market share gains in institutional businesses. " For the first time in two years our to-do list is not a problem list and we can focus our energies on enhancing our franchise," Gorman said in the conference call.

"On the whole, management is making progress cleaning up legacy issues and growing tangible book, but a 3.9% full-year ROE shows us that MS is still a work in progress," Nomura analyst Glenn Schorr said in a statement. "While investors may be disappointed that [compensation] at ISG was up 3% y/y, like peers, if Morgan's capital markets revenues don't start to show some progress in 1H2012 management will likely adjust the firm's footprint and infrastructure."

--Written by Shanthi Bharatwaj in New York



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