Morgan Stanley rushes profit report to ward off bears
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From Times staff writer Walter Hamilton:
After its stock took a severe beating today, Morgan Stanley decided to rush out its fiscal third-quarter earnings report, which had been due for release on Wednesday.
The results, which were down much less than analysts had expected, initially had the desired effect: Morgan’s shares rose as high as $31.72 in after-hours trading. But the price has since slipped back to $28.35.
The shares had plunged $3.49, or 10.8%, to $28.70 in regular trading, and fell as low as $23.21 early in the session -- raising fears that Wall Street bears had marked Morgan as the next big brokerage casualty, just days after Lehman Bros Holdings Inc.’s demise.
Morgan said it earned $1.43 billion, or $1.32 a share, in the quarter ended Aug. 31. That was down about 7% from $1.54 billion, or $1.44 a share, a year earlier.
Analysts had expected Morgan to earn just 78 cents a share in the quarter.
The company is holding a conference call with analysts at the moment.
The question is whether the results are good enough to keep short sellers and other bears at bay, as they hunt for the next likely victims of the credit crunch and real estate crash.
Earlier today Goldman Sachs Group Inc. reported a 70% drop in fiscal third-quarter profit, to $845 million, or $1.81, from $2.85 billion, or $6.13 a share.
Goldman’s shares dived as low as $116.13 at the start of trading, from $135.50 on Monday, but then recovered most of the loss to finish off $2.49, or 1.8%, at $133.01.
The sell-off in the two stocks in recent days is akin to the hits that shares of major technology companies suffered during the dot-com bust, said David Ellison, president of the FBR mutual fund group. Investors knew that tech leaders such as Microsoft Corp. and Cisco Systems Inc. were well-run, but they didn’t know how badly the industry meltdown would hurt them, he said.
‘When things get ugly they test everybody,’ Ellison said. ‘They’re going to test Morgan and Goldman.’
Investors are worried that, like many other financial titans, Goldman and Morgan are stuck with highly leveraged assets that they can’t get off their books.
The longer-term concern is that the classic investment-bank business model -- which requires the firms to finance their investment and securities operations through enormous short-term borrowing in the capital markets -- isn’t viable in the drastically changed landscape of the financial system.
There is a lot of speculation that even the once-unassailable Goldman and Morgan might have to either buy commercial banks, whose sources of funding are much cheaper, or sell out to banks, as rival Merrill Lynch & Co. did last weekend to sudden suitor Bank of America Corp.