When times get tough, you try to focus on the stuff that’s still going right. So in light of Morgan Stanley's (NYSE: MS) dismal earnings release Wednesday morning, let's get one thing straight: It could have been much, much worse.
Second-quarter earnings came in at $1.03 billion, or $0.95 per diluted share, a tad above analyst expectations of $0.93 per share, but still down 57.5% from the $2.36 billion or $2.24 per share in the same period last year. Net revenue took a grisly 38% dip, to $6.5 billion. The results were propped up by the sale of Morgan Stanley Wealth Management S.V., as well as a secondary offering in MSCI, which combined to tack on $1.43 billion of pre-tax income.
Like its other Wall Street pals, Morgan Stanley continues to be pricked by a debt market that shows few signs of mercy. Fixed-income sales and trading net revenue fell 85% from last year. Equity sales and trading net revenue fell 11%, while investment banking revenue declined 49%. On a somewhat brighter note, asset management logged net customer inflows of $15.5 billion, compared with $9.3 billion a year ago. However, this segment posted a loss of $227 million.
Following the path of other investment banks caught up in leverage lethargy, Morgan Stanley upped its average total liquidity to $135 billion and reduced its leverage ratio to 25.1, around the same level to which Lehman Brothers (NYSE: LEH) recently reduced its ratio.
There are a couple of ways to take Morgan Stanley's earnings. It did make a profit, and in these market conditions, that's a monumental feat in itself. On the other hand, its results paled in comparison to those reported by rival Goldman Sachs (NYSE: GS), which saw a relatively modest 7% drop in net income for the quarter. Morgan Stanley's profit was also juiced by one-time gains, one of which came from a wealth management business in Spain. That doesn't leave a warm, fuzzy feeling about market conditions here at home.
Regardless, with shares down more than 25% year to date, any news short of Armageddon is bound to bring relief. Shares have fallen slightly since the news, but let's put everything in perspective; Morgan Stanley will be here next year. Its ability to keep its doors open isn't in jeopardy. In an industry where it's "Shoot now, ask questions later," that's about all it can ask for.
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