gave more evidence Wall Street is recovering in quarterly earnings disclosed Thursday, even as skeptical investors took bites out of both companies' highflying shares.
Goldman said fourth-quarter earnings close to doubled from last year thanks to another strong performance from its massively profitable trading group, while Morgan Stanley's net income grew by about half from a year ago on a big gain in profits from clients of its institutional securities services.
There were chinks in the success stories, however, as a handful of metrics in both companies' fourth-quarter reports were down from the third quarter. Goldman was also coping with the defection of its president, John Thain, to the
New York Stock Exchange
Recently, Morgan Stanley's shares were down $1.95, or 3.4%, to $55.68. Its 52-week range is $32.46 to $58.20. Goldman's shares were down $1.25, or $1.3%, to $97.10. Its 52-week range is $61.02 to $100.78.
The year-over-year earnings gains at both firms continued to be fueled largely from bond trading, a trend that was established early this year. Neither firm has seen a significant revival in merger and acquisition work, although much of Wall Street expects a rebound in corporate deal-making next year.
The earnings news, which comes on the heels of equally impressive results from
, is likely to be overshadowed by Thain's departure.
In naming Thain to replace Richard Grasso, who resigned this summer as head of the NYSE following controversy over his $148 million pay package, the Big Board is hiring away the person widely seen as the eventual successor to Henry Paulson, Goldman's chairman.
Thain, 48, is the second high-level defection from Goldman this year. In July, John Thornton, who had served as co-president with Thain, left the prestigious investment firm to be a professor at Tsinghua University in Beijing. Goldman quickly moved to squelch speculation of any internal turmoil by naming Lloyd Blankfein, the firm's vice chairman, to succeed Thain as president and chief operating officer.
Goldman earned $971 million, or $1.89 a share, in its fourth quarter, up from $505 million, or 98 cents a share, a year ago. Analysts had forecast earnings of $1.52 a share in the latest quarter. Morgan Stanley earned $1 billion, or 94 cents a share, in its fourth quarter, up from $732 million, or 67 cents, a year ago. Analysts had forecast earnings of 89 cents in the latest quarter, according to Thomson First Call.
Investors were disappointed by Morgan Stanley's performance in comparison to its third quarter, when the bull market was in full swing. Earnings in the fourth quarter declined 18% from the prior quarter, when the firm had net income of $1.27 billion, or $1.15 a share.
Net revenue at Morgan Stanley fell 3% from the third quarter to $5 billion. Morgan Stanley's problems appear to have stemmed from a big sequential decline in revenue from its proprietary trading desk: it fell 58% to $894 million.
Fees from advising on corporate deals fell 17% from a year ago to $225 million. That's up 73% from the third quarter's $130 million.
Goldman did not incur any of the weakness in proprietary trading that Morgan Stanley saw. Trading and investment revenue at Goldman were $2.2 billion, up 27% from the third quarter and up 59% from the year ago. Investment banking revenue at Goldman was $626 million in the fourth quarter, up 39% from a year ago and up 6% from the third quarter.
On a net revenue basis, Goldman's investment bank revealed some quarter-to-quarter weakness in bond underwriting and corporate advisory work. In the fourth quarter, net revenues from bond underwriting was $155 million, up 34% from a year ago but down 17% from the third quarter. Merger and acquisition advisory work, which took in $303 million in revenues, was little changed compared with the year-ago fourth and previous third quarters.
Most analysts were satisfied with Goldman's results, noting that its overall revenue was in line with expectations.
Despite the road bumps, executives at both firms expressed confidence about the year ahead in press releases announcing their earnings. Morgan Stanley Chairman and Chief Executive Philip Purcell said the firm enters 2004 with "significant momentum." Goldman's Paulson, meanwhile, said the firm sees a "more positive environment" in the year ahead.