Morgan Stanley reported its third consecutive quarterly loss on Wednesday, saddled with a charge related to repaying government loans and the accounting impact of improvement in its debt prices. The results came in sharp contrast to a blowout quarter reported by rival Goldman Sachs Group Inc last week. Morgan Stanley shares were down 4.7% in pre-market trading. Morgan Stanley swung to a loss applicable to common shareholders of $1.26 billion, or $1.10 per share, in the second quarter, compared with a profit of $1.1 billion, or $1.02 a share, a year earlier. Net revenue fell 11% to $5.4 billion.
Morgan Stanley’s Chief Financial Officer Colm Kelleher, in an interview with Reuters Television, said the company was not satisfied with its performance in fixed income and asset management. During the quarter, the New York-based bank repaid $10 billion from the government's Troubled Asset Relief Program, incurring a one-time charge of $850 million. The improvement in its debt prices reduced net revenue by $2.3 billion.
During the quarter the bank completed the formation of the Morgan Stanley Smith Barney brokerage joint venture with Citigroup Inc. As Morgan Stanley scaled back on risk after the collapse of the financial sector last fall, it found itself posting lackluster earnings compared with Goldman Sachs, which last week posted quarterly earnings up 33% on strong trading results.
Despite the second-quarter loss, Morgan Stanley set aside $3.9 billion for compensation expenses, up from $3.1 billion set aside a year earlier. The bank, which ratcheted down risk-taking after the fall of some of its competitors last year, said its risk measurements were flat in the quarter. The bank's “value at risk,” a measure of the maximum possible losses it faced on 95% of its trading days, on average was $113 million, compared with $100 million a year ago and $115 million in the first quarter of 2009. Morgan Stanley shares stood at $26.27 in pre-market trade. They closed Tuesday at $27.56 on the New York Stock Exchange. (Reuters)