The Telegraph
Since 1st March, 1999
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Morgan shocks Wall Street

New York, Sept. 20: Morgan Stanley said Thursday that net income in its third quarter fell 13 per cent from a year earlier, pulled lower by sour financial markets and a poor environment for investment banking.

It was the eighth consecutive quarter of lower profits at Morgan Stanley, which along with the rest of Wall Street has struggled through an extremely rough period.

In the quarter that ended August 31, Morgan Stanley said it had earned $ 611 million, or 55 cents a share, down from $ 705 million, or 62 cents a share, in the same period a year ago. Earnings were down 23 per cent from the second quarter, when it earned $ 797 million, or 72 cents a share.

Net revenue—total revenue minus interest expense and the provision for loan losses—fell 11 per cent from a year ago, to $ 4.6 billion.

Analysts had expected profits to decline from the second quarter because of difficult market conditions during the summer. But the results were worse than anticipated. Morgan Stanley missed consensus per share earnings estimates by 12 cents a share.

While sharp declines in the firm’s securities business, which includes investment banking, trading and Morgan Stanley’s retail brokerage, were disappointing, analysts said the reason Morgan Stanley did not post better results was its decision to keep spending money on items like marketing and equipment that will give it an advantage when business picks up again. David Trone, an analyst at Prudential Securities, said Morgan Stanley’s non-compensation expenses were “substantially higher” than expected.

Guy Moszkowski, an analyst at Salomon Smith Barney, said the firm’s refusal to rein in such costs reflects “a conscious decision to spend meaningful amounts of money to continue to update and automate securities trading and clearance platforms.”

“At a time when revenue is under pressure,” Moszkowski said, “other companies are doing more to limit their expenditures in these areas.”

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