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In response to
"Possible to C/P? -- nm"
by
Stephen
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here you go
Posted by
Bloger Blore (aka rogermore)
Oct 19 '11, 11:50
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Morgan Stanley posts $2.2bn profit
By Tom Braithwaite in New York
AFPMorgan Stanley clung on to a narrow profit in the third quarter, defying suggestions that the investment bank would be hurt severely by its eurozone exposure and the near-freeze on corporate activity.
Reporting a net profit of $2.2bn, James Gorman, Morgan Stanley chief executive, said the group had �effectively navigated turbulent markets� but said he could fundamentally reinvent the business � or shrink it � if the tougher operating environment lasted.
The bank�s underlying profit was much lower. The headline results � like other Wall Street groups � were flattered heavily by an accounting treatment that makes banks book a gain on the fall in value of their own debt.
Despite market rumours, the bank said it had seen no significant outflow of hedge fund cash from its prime brokerage and had built a liquidity pool of $180bn that could be relied upon if funding markets seized up. It even bought back $2bn of its own debt to take advantage of the decline in value.
Ruth Porat, chief financial officer, told the Financial Times that there had been some diminution in prime brokerage balances in the quarter but she attributed these to wider market volatility. She said they were up by double-digit percentages year-on-year.
Smaller than Goldman Sachs and without the deposit base of JPMorgan Chase or Bank of America, Morgan Stanley has been buffeted severely this year, with its credit default swap spreads � an indicator of default risk � blowing out to about 600 basis points earlier this month.
At that time, some Morgan Stanley counterparties told the FT they had reduced their exposure to the bank and said elevated CDS, particularly above 400bp, can prevent them trading with any bank. The spread has since narrowed and on Wednesday they traded at 384 bps, according to Markit, the data provider.
The spike in CDS occurred when concerns swirled around the bank that it could have a huge derivatives exposure to French banks, which themselves have suffered on fears about their exposure to eurozone debt.
To try to quell those fears, Morgan Stanley released figures on its eurozone debt holdings, including, for the first time, French exposure. It said it had $1.5bn in exposure to France, but almost none on a net basis, and $5.6bn to Greece, Italy, Ireland, Spain and Portugal, or $2.1bn net.
The bank reported third-quarter revenues of $9.9bn against $6.8bn last year. The �debt valuation adjustment� accounted for $1.12 of earnings per share of $1.15, which compared with a loss of 7 cents.
Nonetheless, analysts had expected an underlying loss and shares rose by more than 2 per cent in midday New York trading.
The group�s main �institutional securities� division reported net revenues of $6.5bn compared with $2.9bn a year ago. Stripping out the DVA distortion, the division�s net revenues were $3bn compared with $2.2bn in the third quarter last year, with a 29 per cent drop in underwriting revenues but better trading performance than predicted.
Ms Porat said there was a backlog of capital markets activity waiting for a more stable market. �The pipeline remains very healthy and the issue is getting transactions through the pipeline and executed,� she said. �If we could see a diminution in the Vix [the volatility index] that would be helpful to get things moving.�
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