Last updated:July 19, 2012 1:04 pm
Morgan Stanley hit as trading slides
By Tracy Alloway in New York
Morgan Stanley said its second-quarter profits halved after a slump in trading activity.
Net income in the three months to June was $563m, or 28 cents a share, compared with $1.22bn, or 36 cents a share, in the same period the year before.
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The decline in profits means the bank has missed analysts’ estimates. Excluding the impact of an accounting quirk, which added $350m of revenue to the company’s results in the second quarter, earnings per share were just 16 cents – far below the 29 cents expected by analysts.
Relatively impressive first-quarter results had raised investor hopes that Morgan Stanley was successfully coping with lower trading volumes, a dearth of big capital markets deals and new financial regulations, and was still able to generate profits.
“Although global economic uncertainty remains a headwind, we are proactively positioning the firm for success,” James Gorman, chief executive, said in a statement on Thursday.
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“Our businesses showed resilience in key areas during the quarter, and we made progress against strategic goals.”
Pre-tax income from the bank’s institutional securities results declined to $508m from $1.49bn in the second quarter of last year.
“Several potholes appeared along the road to recovery including Moody’s multiple-notch downgrades of big banks and brokers, continued uncertainty around the eurozone situation, and the formal introduction of beefed-up capital requirements for US banks,” CreditSights analysts said in a note to clients ahead of the results.
Morgan Stanley was last month downgraded two notches from A2 to Baa1 by Moody’s. While the bank escaped the three-notch downgrade some investors had feared, the cut nevertheless prompted speculation about the bank’s vast derivatives business. It had previously said it would have to post up to $6.7bn in additional collateral to derivatives counterparties if another rating agency followed Moody’s.
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Copyright The Financial Times Limited 2012.
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