Two Big Investment Banks Report
Drops in Quarterly Profit
September 23, 2004
Morgan Stanley and Bear Stearns posted drops
in quarterly profit yesterday, surprising some investors one
day after two other big investment banks reported a rise in
Morgan Stanley said that profit dropped by
a third on lower bond trading revenue, weak equities results
and higher expenses, falling short of Wall Street's low expectations
and causing its shares to fall.
Net income fell to $837 million, or 76 cents a share, in the
fiscal third quarter ended Aug. 31, down from $1.27 billion,
or $1.15 a share, a year earlier.
The results disappointed investors after surprisingly
strong results at Goldman Sachs and Lehman Brothers had given
some investors hope that Wall Street would find a way to navigate
Morgan Stanley's chief financial officer,
David Sidwell, told reporters that a rally in bonds this summer
caught the firm off guard, hurting its fixed income and currency
The investment banking business made some
gains in the quarter, with Morgan Stanley maintaining lead rankings
in equity and equity-linked underwriting and in global initial
public offerings. Still, banking income fell 20 percent, to
$783 million, as the overall market shrank.
Shares of Morgan Stanley fell $3.66, to $48.72.
Morgan Stanley also disclosed that it reached
a preliminary agreement with the New York Stock Exchange over
failure to comply with prospectus delivery rules, employee misuse
of funds and other matters.
The stock exchange confirmed that the company
would pay a $19 million fine and face censure.
Bear Stearns posted fiscal third-quarter net
income of $283.3 million, or $2.09 a share, compared with $313.4
million, or $2.30 a share, a year earlier. Last year, third-quarter
profit included a gain of 38 cents a share from an investment.
Net revenue rose 3.3 percent, to $1.53 billion,
but revenue in the capital market division fell 1.7 percent,
to $1.2 billion.
Bear Stearns raised its quarterly dividend
by 25 percent, to 25 cents a share. Its shares fell $2.14, to