Fallout: The Financial Crisis

Caution equals loss for Morgan Stanley

Alisa Roth Jul 22, 2009
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Fallout: The Financial Crisis

Caution equals loss for Morgan Stanley

Alisa Roth Jul 22, 2009
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TEXT OF STORY

Kai Ryssdal: This is, as we’ve been telling you, earnings week for the big Wall Street banks. And while results so far have been pretty good, Goldman Sachs and JP Morgan posted really big numbers — up toward $3 billion in profit. There’s a reason you wait to report the news ’til it actually happens. Morgan Stanley reported profits today. And Marketplace’s Alisa Roth tells us from New York, the results weren’t nearly so pretty.


ALISA ROTH: Morgan Stanley lost $1.2 billion in the second quarter. There are a lot of reasons for that, including a lousy commercial real-estate business. And the cost of repaying its TARP money.

But there’s another reason it didn’t report the kind of earnings we saw at Goldman Sachs and JP Morgan last week. Mark Lane follows banks at the investment firm William Blair. He says those banks took risky bets on the markets. And made big money. Morgan Stanley decided to play it safe. And that didn’t pay off at all.

MARK LANE: They pulled back their risk appetite in trading, and particularly fixed income. They’re not generating the same type of revenue and earnings growth from trading that some of the other firms are.

He says that’s partly because Morgan Stanley got scared off by some losing bets it made before the markets crashed last year. And partly because of poor management. The company recently announced a new head of the trading business.

But some of Morgan Stanley’s bad news is actually good news. Brad Hintz is with the investment firm Sanford Bernstein. And he says some of its bonds are worth more than they were six months ago.

BRAD HINTZ: Why does a bond go up in value? Well a bond goes up in value if the credit of the company that issued the bond gets better.

Unfortunately for Morgan Stanley, accounting rules make it look like the company lost money on those bonds.

But Morgan Stanley seems to think its biggest challenge is holding on to its talent. Banks usually spend about half their revenues on compensation. Today Morgan Stanley said it’ll spend more than 72 percent of its revenues on paying its people.

In New York, I’m Alisa Roth for Marketplace.

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