For all of the printer's ink spilled earlier this year on the clash of titanic egos at the top of Morgan Stanley (NYSE:MWD), it's time to get back to business. Yes, Purcell got a sweet deal to just go away and John Mack got a sweet deal to come on down. To quote a popular and deeply silly phrase, "It is what it is" and it's time to move on.
It would seem to me that Morgan Stanley had a pretty good quarter -- not quite as good as Goldman Sachs (NYSE:GS), but maybe a bit better than Bear Stearns (NYSE:BSC). Net revenue rose 29% (to nearly $7 billion), and income from continuing operations rose 36%. Reported net income isn't especially helpful this time around, as results included a $1 billion loss tied to the company's intention to sell its aircraft financing business.
As is generally the case at the so-called "white shoe" firms of Wall Street, Morgan gets a huge chunk of its change from trading. For the third quarter, fixed-income trading produced about $2 billion of revenue (up 63%) and equity trading chipped in $1.3 billion (up 45%). Investment banking was also fairly strong, as advisory fees (typically M&A) climbed 25%. Underwriting revenue rose 27%, as strong fixed-income underwriting offset flat equity results.
Growth was not quite so strong in the next two largest businesses -- asset management and the Discover credit card. Asset management coupled a 2% drop in revenue with a 25% decline in pre-tax income, while Discover pre-tax income dropped 28% on a 3% revenue increase. Though tiny in terms of its contribution to pre-tax income, the retail brokerage business did okay -- pre-tax income rose 36% on top of a 12% revenue increase and a 14% cut in the number of representatives.
There's no shortage of reasons to be concerned about Morgan Stanley. Is the board up to snuff and concerned with protecting regular shareholders? Will management turnover hurt morale and/or results -- or will it improve them? So on and so forth -- each one a valid concern.
But my larger issue is the apparent mishmash of businesses at Morgan Stanley. They're not a great credit card company, nor are they a great retail brokerage, so why keep those businesses? Could they spin them off or sell them and use the capital to improve the core institutional banking business or the asset management arm? I don't have the answers myself, but I think it's a question that at least merits asking.
More institutionalized takes:
- Sachs of Solid Goldman
- Not Bearish on Bear Stearns
- Citigroup Nixes Weill's Deal
- It's Good to Be Phil Purcell
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). Though he worked on Wall Street, the only white shoes he owns are tennis shoes.
