Morgan Stanley CFO sees slow and steady prevailing

NEW YORK (Reuters) - Since the depths of the financial crisis last fall, a more conservative Morgan Stanley has lost ground to archrival Goldman Sachs, and the gap showed up with a vengeance in first-quarter results.

Goldman Sachs Group Inc, which has continued risky trading and investment activities, reported a profit applicable to common shareholders of $1.66 billion; Morgan posted a loss of $578 million.

Goldman's results last week sparked a rally in financial shares and extended the bank's outperformance since September; Morgan's numbers pushed its shares lower in Wednesday trade.

Investors will make comparisons, but that's OK, Morgan Chief Financial Officer Colm Kelleher told Reuters.

"Now, if people want to say it's the hare and the tortoise, I don't mind being the tortoise," Kelleher said shortly after the bank announced its wider-than-expected first-quarter loss. "On a risk-adjusted basis -- and we've been very focused on risk-adjusted returns -- we're comfortable."

Kelleher said the bank's core trading, banking and brokerage businesses performed very well. Over time, investors will respond to Morgan's lower-risk strategy, he added.

"We had market share gains in our flow (trading) businesses, but within sales and trading we didn't take a lot of risk. Our value-at-risk numbers are significantly lower than some of our competitors," he said.

Morgan's trading VAR in the first quarter was $115 million, compared with $240 million at Goldman. That jibes with Kelleher's previous comments that Morgan Stanley would steer "closer to shore" during a period of choppy financial waters.

Goldman and Morgan are the last remaining major Wall Street investment banks. Last week Goldman lifted financial markets when it reported a higher-than-expected profit, driven by robust fixed income trading results and investment gains.

Investors so far are siding with the hare.

Goldman shares are down 10 percent since mid-September, when Lehman Brothers collapsed, while Morgan is down 28 percent. So far this year, though, they are neck and neck, both up about 44 percent.

Kelleher contends Morgan stacks up well in terms of its balance sheet strength, including $152 billion in readily liquid assets and a Tier 1 capital ratio of 16.4 percent. Goldman's Tier 1 ratio was 13.7 percent.

Morgan's books include $10 billion of preferred equity sold to the U.S. Treasury last fall under the Troubled Asset Relief Program. Even if it repaid the TARP money, Kelleher said Morgan's Tier 1 ratio would be 12.9 percent, surpassing that of rivals, including JPMorgan Chase & Co, before they repay.

All that means Morgan is prepared to repay TARP as soon as U.S. regulators allow, he said, and can go back on offense when markets improve.

"We're ready to go when we see risk-adjusted returns," he said. "We've made no secret 2008 was hugely challenging for the industry, and 2009 we always saw as a year of transition. An extra three months of being safe to me is not a mortal sin."

(Reporting by Joseph A. Giannone; editing by John Wallace)