By Hao Li: Subscribe to Hao's RSS feed
July 21, 2010 1:28 PM EDT
Banking giant Morgan Stanley (NYSE:MS) handily exceeded analyst estimates and its shares jumped 6.54 percent in pre-market trading.
The company earned $1.4 billion in the second quarter, or $0.80 per diluted share, compared to a loss of $138 million a year ago and a profit of $1.8 billion last quarter. Net revenues were $8.0 billion, compared to $5.2 billion a year ago and $9 billion last quarter.
Analysts were looking for earnings of $0.46 per share on revenues of $7.93 billion.
“While markets were challenging this quarter, Morgan Stanley benefited from a deliberate and disciplined focus on execution. We strengthened leading market positions in our client-focused Investment banking business [and] improved client flows in Sales and Trading,”said CEO James P. Gorman.
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On the revenues side, results in its three divisions were much improved from last year but slightly worse than last quarter. Net revenues in Global Wealth Management were impressive, coming in at $3.07 billion, compared to $1.92 billion last year and $3.1 billion last quarter.
Like rival Goldman Sachs (NYSE:GS), Morgan Stanley saw lower underwriting revenues from last quarter and last year, reflecting the difficult environment for investment banking. However, unlike Goldman, Morgan Stanley's trading revenues were strong, coming in at $3.3 billion, up 93 percent from last year and down 11 percent from last quarter.
It attributed the results of its sales and trading business to debt valuation adjustment (DVA), or “changes in Morgan Stanley’s credit spreads resulting from fluctuation in the fair value of certain of its long-term and short-term borrowings .”
Similar to accounting for the deteriorating credit conditions of its assets, Morgan Stanley is booking the “gains” in its liabilities because if they go bankruptcy, they will not pay the full amount they owe.
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