Surprise, surprise: Another investment bank reported a disastrous quarter.
The full-year results aren't that bad, but the net income comparison is skewed. For one thing, last year's numbers include Discover Financial Services
One hint of hope came from a drop in the leverage ratio, from 32.6 last year to just 11.4 today. That's good in terms of risk management, but jettisoning risk from the investment banking world is a double-edged sword for investors. How much of recent years' outsized profits simply resulted from successful gambles juiced by suicidal amounts of leverage? Too much to feel comfortable about the earnings potential of these companies, that's for sure.
If Morgan Stanley really is retreating from the old investment banking model, what's next? Now that it's a bank holding company, its obvious move is a merger with a commercial bank, which would turn it into somewhat of a JPMorgan Chase
Which bank might be a marriage partner? The low-hanging fruit has already been picked, now that Wachovia has been swallowed up by Wells Fargo
The latter would be pretty darn interesting. Citigroup -- struggling on its own -- probably needs to find a partner, and Morgan Stanley could desperately use Citi's commercial banking assets to distance itself from the short-term funding market. Taking two pieces of dung and slapping them together typically won't get you very far, but then again, banks are running out of options these days.
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