By Saabira Chaudhuri
Morgan Stanley reported fourth-quarter results that fell short
of analyst estimates as revenue was hit by the same trading
slowdown that hammered rivals and progress stalled on a key measure
in the firm's wealth management business.
Shares dropped about 2% in premarket trading as both per-share
earnings and revenue fell short of what analysts were
expecting.
The bank reported a profit of $1.04 billion compared with a
year-earlier profit of $84 million. Stripping out one-time items
and accounting adjustments, profits fell to 39 cents from 50 cents
a year earlier. Analysts polled by Thomson Reuters had expected
earnings of 48 cents a share.
Among other items, the latest quarter's results include a tax
gain of $1.4 billion and a compensation expense of $1.1 billion,
while the year-earlier quarter included a pretax legal expense of
$1.2 billion.
Revenue fell 1% to $7.76 billion, while revenue excluding
accounting adjustments dropped 2.5% to $8 billion, coming in below
analyst estimates for $8.08 billion.
Revenue from equities trading, an important profit driver for
Morgan Stanley, rose to $1.63 billion from $1.5 billion a year
earlier, but came in lower than what rival Goldman Sachs Group Inc.
reported on Friday.
Morgan Stanley also joined Goldman, Citigroup Inc., Bank of
America Corp. and J.P. Morgan Chase & Co. in posting lower
revenue from fixed income, currencies and commodities trading, or
"FICC," an important business for big banks that has seen difficult
trading conditions, walloping profits across Wall Street.
Morgan Stanley's adjusted FICC revenue came in at roughly $599
million, down 14% from a year earlier, driven by lower revenue in
credit products and commodities.
Ahead of the firm's earnings report, Macquarie analyst David
Konrad noted that Morgan Stanley--whose deal to sell its
oil-trading and storage business to Russia's OAO Rosneft fell
through last month--stands particularly exposed to gyrations in the
commodities markets.
The firm's more stable wealth management business turned in
stronger results. Revenue in that division rose 2.4% from a year
earlier and edged up 0.8% from the prior quarter to $3.8
billion.
But the wealth management unit's pretax profit margin, a closely
watched efficiency metric, was 19% in the fourth quarter, flat with
a year earlier and down from 22% reported in the third quarter.
The firm reported higher compensation costs in the division,
which helped drive the margin lower. Morgan Stanley officials had
previously said they are targeting a pretax profit margin of 22% to
25% by the end of 2015.
Overall, Morgan Stanley logged lower expenses during the
quarter, benefiting from the absence of 2013's large fourth-quarter
legal charge. However the bank reported a 28% rise in compensation
costs, part of which comes from its decision to start paying out a
bigger slice of employees' bonuses immediately and to speed up the
vesting period for certain cash deferrals.
In the latest quarter, Morgan Stanley logged a legal charge of
$284 million tied to what it described as several legacy
residential mortgage and credit crisis related matters.
Overall, noninterest expense was $7.9 billion, down 2% from the
year earlier but up 18% from the third quarter.
Investment banking revenue, meanwhile, fell 6.6% from a year
earlier to $1.46 billion as a decline in underwriting overshadowed
gains in advisory revenue.
Advisory revenue of $488 million increased from $451 million a
year earlier on higher levels of M&A activity. Equity
underwriting revenue fell 17% to $345 million from $416 million a
year earlier, while fixed income underwriting revenue decreased
6.7% to $462 million from $495 million in the prior-year quarter,
reflecting lower loan fees.
Revenue from investments plunged 79% from a year earlier to $112
million.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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