Morgan Stanley fails to follow bank trends

Morgan Stanley yesterday surprised the markets by reporting a third-quarter loss just a day after rival Goldman Sachs had unveiled a better-than-expected profit.
By The Newsroom
Published 19th Oct 2010, 23:53 BST
Updated 21st Oct 2010, 02:30 BST

The US banking giant made a $91 million (57.6m) loss blamed on difficult trading conditions and a writedown of $229m related to a troubled hotel and casino project in New Jersey. The shortfall compared with a profit of $498m a year earlier.

On Tuesday, Goldman Sachs reported a profit of $1.9 billion for the same quarter.

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Brad Hintz, an analyst with Sanford C Bernstein, said: "Morgan Stanley is a caterpillar in metamorphosis. It's either going to turn into a beautiful butterfly or get eaten by a robin."

Morgan Stanley has been playing catch-up with its arch-rival Goldman Sachs since the financial crisis. In 2009, Goldman cashed in on windfall trading opportunities to report a record annual profit while Morgan Stanley, which scaled back risk, reported a loss.

Morgan Stanley knows it has work to do to catch up to Goldman in fixed income trading, which powered the banking industry's rebound from the financial crisis. Third-quarter fixed income net revenue was down by more than half from a year earlier.

Chief financial officer Ruth Porat said the bank's efforts to rebuild its fixed income trading business had further to go.

"We have repeatedly said that fixed income is the area we need to build up," she said.