Morgan Stanley Reports Loss, Cuts Dividend

Morgan Stanley (MS) reported its 1Q09 results this morning. Net loss applicable to common shareholders was $578 million, or $0.57 per share, compared to a profit of $1.41 billion, or $1.26 a share in the first quarter of last year. The loss was much worse than the average estimate of a loss of $0.8 cents per share.

The company changed its fiscal year end from November 30 to December 31 (as a result of its becoming a bank holding company), and the results for December 2008 (a net loss applicable of $1.3 billion) were not included in the results. The results included $331 million, or $0.33 per diluted share, one-time tax related benefits.

Net revenue was down to $3.04 billion from $7.92 billion a year ago. The company had strong results in investment banking, commodities, interest rates and credit products. Management attributed the loss mainly due to $1.5 billion decrease in net revenues related to the tightening of its credit spreads on some of its long-term debt and net losses of $1.0 billion on investments in real estate.

The loss due to the tightening of credit spreads was in contrast to some other banks which were able to record profits due to widening of their credit spreads — for example, Citigroup (C) was able to record a $2.7 billion gain. This is strange accounting, which results in loss for banks if their bonds increase in value and gain if their bonds go down in value.

The results reported by Morgan Stanley diverged from some of the other large banks that managed to report better-than-expected earnings (due to accounting and other gains) recently, including Goldman Sachs (GS), Bank of America (BAC) and Wells Fargo (WFC).

The bank cut its quarterly dividend 81%, to $0.05 per share and expects to save $1.0 billion each year.

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