– Morgan Stanley reported a bigger- than-estimated $177 million loss and slashed its dividend to 5 cents as real estate and debt-related writedowns overwhelmed trading gains. The shares fell 9 percent.The first-quarter loss was 57 cents a share, New York-based Morgan Stanley said today in a statement. The average estimate of 19 analysts surveyed by Bloomberg was for a loss of 8 cents. The company also had a loss of $1.3 billion in December before the start of its new fiscal year.“The only thing that was good was investment banking, frankly everything else was weak,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who once served as Morgan Stanley’s treasurer. “I’m disappointed.”
The results during the quarter ended March 31, 2009 also included writedowns of securities of approximately $0.2 billion in the Company’s Subsidiary Banks,
The company had $1 billion of real-estate losses in the first quarter and writedowns of $1.5 billion from an accounting loss related to an improvement in the firm’s creditworthiness compared with Treasury bonds.
The Company’s Level 3 assets before the impact of cash collateral and counterparty netting across the levels of the fair value hierarchy were $67.4 billion, as of March 31, 2009,
During the quarter ended March 31, 2009, the Company reclassified approximately $2.3 billion of certain Corporate and other debt from Level 2 to Level 3. The reclassifications were primarily related to asset-backed securities and certain corporate loans. The reclassifications were due to a reduction in market price quotations for these or comparable instruments, or a lack of available broker quotes, such that unobservable inputs had to be utilized for the fair value measurement of these instruments.
These unobservable inputs include, depending upon the position, assumptions to establish comparability to bonds, loans or swaps with observable price/spread levels, default recovery rates, forecasted credit losses and prepayment rates. During the quarter ended March 31, 2009, the Company reclassified approximately $2.7 billion of certain Corporate and other debt from Level 3 to Level 2.
Hintz questioned the decision to cut the dividend, which he said is the main source of cash flow for many of the firm’s employees whose net worth is tied up in restricted stock.
“When you cut the dividend you are cutting out the cash that these guys are using to live on in what is arguably a downturn in the industry,” he said. “Are you trying to lose talent out of your company?”
Yeah, well, you might want to drain the talent that sunk your ship. We noticed that you’re a goner these days, Brad. Along with cost cutting, Morgan Stanley is pulling in its horns on the revenue front, preferring to sit safely on its trading gains instead of risking the credit markets.
Morgan Stanley’s fixed-income revenue of $1.3 billion was less than one-fifth of Goldman Sachs’s $6.56 billion in the quarter and less than Citigroup’s $4.69 billion and JPMorgan’s $4.9 billion. Morgan Stanley’s fixed-income revenue included $1 billion of write downs on credit spreads while Citigroup’s included $2.5 billion of gains on credit spreads.
“It is about risk appetite,” Kelleher said on a conference call with analysts, adding that the firm was more cautious about taking advantage of market “opportunities.” Still, he said the firm gained market share in fixed-income markets.
“I don’t see how you could be gaining market share if you’re pulling in all your customer financing like they are,” Bernstein’s Hintz said. “Effectively they let a perfectly well- thrown ball just zoom right by them.”
As of March 31, 2009, the Company had commercial paper and long-term debt outstanding of $1.0 billion and $23.7 billion, respectively, under the TLGP. As of December 31, 2008, the Company had commercial paper and long-term debt outstanding of $6.4 billion and $9.8 billion, respectively, under the TLGP. These borrowings are senior unsecured debt obligations of the Company and guaranteed by the FDIC under the TLGP. The FDIC has concluded that the guarantee is backed by the full faith and credit of the U.S. government.