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Forget Facebook, Morgan Stanley Can't Trade Its Way Out of a Paper Bag

Written by: Antoine Gara 07/19/12 - 2:33 PM EDT
Tickers in this article: GS JPM FB C MS

Updated with information on brokerage venture, layoffs and CEO comments.

  • Morgan Stanley(MS) reported second quarter earnings per share of 16 cents, missing estimates of 29 cents, excluding accounting gains
  • On an adjusted basis, the bank reported revenue of $6.6 billion, also missing Wall Street targets.
  • Earnings were colored by a one-time $350 million accounting gain on the widening of the bank's credit spreads over the quarter. In June, Moody's cut Morgan Stanley's debt rating two notches to Baa1
  • Analysts polled by Bloomberg expected Morgan Stanley to earn 29 cents in adjusted earnings per share on revenue of $7.6 billion. In the first quarter of 2012, Morgan Stanley reported 71 cents in adjusted earnings from its operations on $8.9 billion in revenue

    • NEW YORK (TheStreet) -- Morgan Stanley's(MS) big second quarter earnings miss is a result of abysmal trading figures and not a botched initial public offering of Facebook(FB) shares. Given the second quarter results, the bank's strategy of exiting some trading businesses in favor of its underwriting and wealth management prowess will come under scrutiny.

    Earnings at the nation's sixth largest bank by assets were weighed by far weaker than expected debt and equity trading results, and a two-notch ratings downgrade by Moody's, which propelled profits from continuing operations nearly 80% lower from the first quarter.

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    Morgan Stanley reported total trading revenue of just $2.9 billion and earnings of $158 million missing analyst estimates, as rating downgrades and a withdrawal of client activity likely precipitated the sharp profit drop. "These results are clearly very disappointing, however MS was facing a potential downgrade by Moody's during the quarter, and that likely impacted their trading revenues," wrote UBS analyst Brennan Hawken, in a note to clients.

    The bank reported adjusted earnings per share of 16 cents and revenue of $6.6 billion, missing estimates as overall trading revenue tumbled on a year-over-year and sequential basis.

    Analysts polled by Bloomberg expected Morgan Stanley to earn 29 cents in adjusted earnings per share on $7.6 billion in revenue.

    Including accounting gains on the bank's rising credit spreads, Morgan Stanley earned 28 cents in EPS, missing expectations of 51 cents but reversing a first quarter loss.