(Corrects throughout to reflect fact that Citigroup’s retail brokerage and asset management unit lost money, rather than the Morgan Stanley Smith Barney venture)
* Morgan Stanley fixed-income unit smaller than Goldman’s
* Trading activity was weak across the industry
By Joe Rauch
CHARLOTTE, N.C., Jan 20 (Reuters) - Morgan Stanley (MS.N) may have a smaller fixed-income trading business than Goldman Sachs, but that does not mean it was spared the pain its competitors felt in the fourth quarter.
Analysts on average expect the investment bank and brokerage to report net income of 35 cents per share on Thursday, surpassing fourth quarter 2009 results of 29 cents per share, according to Thomson Reuters I/B/E/S.
On Wednesday, key rival Goldman Sachs Group Inc (GS.N) reported a 53 percent decline in fourth quarter profit, including bond trading revenue that slid 39 percent. [ID:nN18199881]
And last week, Morgan Stanley said Jack DiMaio, its head of interest rate, credit and currency trading decided to leave the bank, leading some investors to guess it will be a weak trading quarter for fixed income.
“Some of the things that have plagued Goldman Sachs and, to a lesser extent JPMorgan, will plague Morgan Stanley,” said Marshall Front, chairman of Front Barnett Associates in Chicago, an investment advisory firm.
Front expects the company to beat expectations, but not have a “blowout” quarter.
Some investors believe Morgan Stanley’s results could fall short of Wall Street expectations and may even be below earnings in the fourth quarter of 2009, because of weakness in trading and retail brokerage.
A dip in earnings would be a stumble for the bank, which has posted five consecutive quarterly profits, and is poised to be profitable for 2010 under first-year Chief Executive James Gorman, who replaced John Mack at the beginning of the year.
Morgan Stanley’s fixed-income pain might be limited by the fact the group has only been generating about 25 percent of the bank’s revenue this year, compared with about 35 percent for the equivalent business at Goldman Sachs.
But another major Morgan Stanley business, retail brokerage, may have been weak in the fourth quarter, according to information disclosed by Citigroup earlier this week. [ID:nN18125293]
Morgan Stanley and Citigroup have a joint venture for retail brokerage. The Citigroup unit that includes its stake in Morgan Stanley Smith Barney lost $52 million in the fourth quarter, compared with a $31 million profit in the same quarter a year earlier.
Morgan Stanley’s shares declined 3.5 percent to close at $27.75 on Wednesday after Goldman announced fourth quarter earnings. (Reporting by Joe Rauch; editing by Andre Grenon)