Morgan Stanley Earnings: Risk Grows, But Still Less Than Goldman’s

Morgan Stanley Earnings: Risk Grows, But Still Less Than Goldman’s

  • Posted Wednesday, October 21, 2009 -
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Morgan Stanley ratcheted up its risk level during the third quarter, but its appetite for excitement is still less than arch rival Goldman Sachs.

Morgan Stanley posted a profit of $757 million, or 38 cents a share, compared with $8.15 billion, or $7.38 a share, a year earlier. Revenue fell 52% to $8.68 billion. Analysts expected a 27-cent profit on revenue of $7 billion. Shares rose more than 5% at the open.

One of Wall Streets biggest criticisms of Morgan Stanleys second-quarter earnings was that the company didnt bet big enough to take advantage of the rebound in stock and bond markets. (A sane person, might remind Wall Street that big, daring financial bets was what nearly toppled the financial sector. But that detail seems to fly out the window come earnings season.)

Fast-forward to the third quarter. Morgans average VaR was $168 million. Thats up 9% from last quarter. Meanwhile, over at Goldman Sachs, average daily VaR fell 15%, to $208 million in the third quarter from the second. Clearly, Morgan sees trading as its best opportunity for growth, and Chief Executive John Mack said as much in todays earnings release. Although we still have work to do in sales and trading, it offers our single biggest opportunity for growth as we build out our client flow business and pursue disciplined risk-taking. Investors seem to like the sound of that.

Morgan Stanley spokesman Mark Lake points out, however, that the best numbers to use when comparing Morgan and Goldman VaR levels is Morgan's average VaR level based solely on trading. (The $168 million VaR figure includes risk from trading and non-trading operations. Goldman's VaR number only reflects trading, Lake says.) Morgan's trading VaR was $118 million during the third quarter, up 4.4% from the second quarter.

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