Morgan Stanley posts loss, slashes dividend

By Joseph A. Giannone

NEW YORK (Reuters) - Morgan Stanley posted a wider-than-expected quarterly loss on Wednesday and slashed its dividend as real estate investment losses and a debt-related charge wiped out strong trading and banking fees.

The loss, the third in six quarters for the investment bank and brokerage, disappointed investors who were hopeful after rival Goldman Sachs Group Inc reported a surprisingly high profit last week. Morgan shares were down 5 percent in afternoon trading.

"I guess this shows not all banks are alike. It looks like (Chief Executive) John Mack took less risk and missed out on a chance to pick up some trading revenue," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati.

Morgan posted a net loss applicable to common shareholders of $578 million, or 57 cents a share, for the first quarter, compared with shareholder income of $1.31 billion, or $1.26, in the comparable period last year. Analysts on average expected a loss of 9 cents a share, according to Reuters Estimates.

The bank cut its quarterly dividend by 80 percent to 5 cents a share from 27 cents. The move will save the bank $1 billion a year.

"We remain cautious," Chief Financial Officer Colm Kelleher said in an interview, though he stressed Morgan has more than enough capital and cash to go back on offense.

"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."

SETBACKS

First-quarter revenue fell 62 percent to $3.0 billion as improvement in core investment banking and trading businesses were erased by losses.

Morgan, one of the world's largest commercial real estate investors, recorded $1 billion of net losses on commercial real estate, an area widely seen as a source of new writedowns for banks and insurers.

"It is my single biggest worry," Kelleher said.

Morgan also took a $1.5 billion accounting loss on certain of its own debt, reflecting the rising value of Morgan credit this year.

The same fair-value accounting rules bolstered its results when markets were tumbling and its bonds were under pressure. Morgan booked $3.5 billion of revenue in the fourth quarter, $900 million in the third quarter and $1 billion a year ago.

Institutional securities businesses generated revenue of $1.7 billion in the first quarter. Fixed-income trading revenue was $1.3 billion, while equities trading generated $900 million. Investment banking brought in $812 million in the quarter, a period when Morgan was the leader in announced mergers and acquisitions worldwide.

The first-quarter results were the first since Morgan, which became a bank holding company in September, adopted a calendar year reporting schedule. In December, a month that was not included in either the first-quarter or its fiscal fourth-quarter results, the bank had a net loss applicable to shareholders of $1.6 billion.