NEW YORK, Jan 19 – A special charge pushed Morgan Stanley into the red in the fourth quarter, but the Wall Street bank still posted better-than-expected results by cutting noncompensation costs, sending its shares higher.
Morgan Stanley lost US$275 million (RM854.98 million), or 15 cents per share, compared with earnings of US$600 million, or 41 cents per share, a year earlier. The results included a loss of US$1.7 billion, or 59 cents per share, related to a settlement with MBIA Inc, announced previously.
The loss from continuing operations came to 14 cents a share, far better than the loss of 57 cents a share that Wall Street analysts had expected, on average, according to Thomson Reuters I/B/E/S.
Morgan Stanley shares were up 4.8 per cent in morning trade on the New York Stock Exchange.
Like its Wall Street rivals, Morgan Stanley’s top-line performance showed the impact of the European sovereign debt crisis. Overall revenue dropped 26 per cent, to US$5.7 billion, the weakest figure since the second quarter of 2009.
Despite the revenue decline, Morgan Stanley did less to cut down on pay than its Wall Street rivals.
For the full year, the bank’s US$16.4 billion in compensation represented 51 per cent of net revenue. That compares with a 42 per cent compensation-to-revenue ratio for Goldman Sachs Group Inc and a 34 per cent ratio for JPMorgan Chase & Co’s investment bank.
Morgan Stanley’s large wealth management business contributed to the hefty payouts. The bank paid its Morgan Stanley Smith Barney employees more than trading and banking employees combined, both in dollar terms and as a portion of the revenue of the respective businesses. Goldman and JPMorgan do not have significant brokerage operations, while Morgan Stanley Smith Barney boasted 17,156 financial advisers at year-end.
The wealth management payout ratio was 62 per cent of revenue, while for the trading and investment banking areas the ratio was 42 per cent, excluding the MBIA settlement.
In a conference call with analysts, CEO James Gorman said the higher payout ratio reflected deferrals of pay from previous years.
In an interview, Chief Financial Officer Ruth Porat said Morgan Stanley tried to cut costs aggressively in some areas last year while making investments in others to build market share.
Areas targeted for cost-cutting included trading businesses that will require more capital under new Basel 3 regulations. Areas of market-share growth for Morgan Stanley included equity derivatives, rates trading and foreign exchange trading.
“It is a painful environment; there’s no question it’s a painful environment, and therefore you’ve seen us continue to invest in the areas we think are important for growth, while at the same time being very meticulous about cost management,” Porat said.
She said Morgan Stanley maintains its long-term target of cutting US$1.4 billion in costs per year from the Morgan Stanley Smith Barney wealth management joint venture it shares with Citigroup Inc. The bank expects to reach US$500 million in savings per year by the end of 2012.
Porat said other types of cost cuts helped bring down non-compensation expenses in the fourth quarter, even though it is a seasonally high quarter for those kind of expenses. Non-comensation expenses fell 7 per cent during the quarter to US$2.34 billion.
“We’re hitting costs very vigorously wherever we can – wherever it makes sense without impeding the investment decisions we’re making, so we still have growth for the future,” she said. – Reuters