Friday, May 18, 2012

Morgan Stanley Posts Operating Profit, Loss Per Share Continues

Morgan Stanley ($MS) reported Q1 2012 financial results on Thursday, April 19.

I previewed Morgan Stanley earnings as "Nowhere to go but up" and they almost proved me wrong! The Gang That Couldn't Shoot Straight did report a slim operating gain of $203 million, but that unraveled into a loss per share of $(0.06) by the bottom of the income statement. That's losses per share for 2 consecutive quarters, in 3 of the past 4 quarters, and in 4 of the past 7 quarters.

Oh sure, there are plenty of reasons why this cursed fate has befallen management and they let you know in detail each quarterly press release. Ultimately, the gods are not so much to blame as the Morgan Stanley mindset and culture. They do this to themselves and apparently to their clients. CEO James Gorman noted in the prior quarter that Morgan Stanley continues "addressing a number of outstanding strategic and legacy issues." I guess that's one way to say it...

The current quarterly excuse was, "Results for the quarter included negative revenue of $2.0 billion compared with negative revenue of $189 million a year ago related to changes in Morgan Stanley’s debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA)".

For the sake of the embattled MS stockholders, I plead with the directors and management to come here to our small rural community on a lake peninsula and talk to the local bait shop owner. He's quite the entrepreneur and could explain the finer points of making a profit, staying out of debt, and how important honesty is. He's well-known for shooting at burglars who were breaking into his store in the middle of the night. They were trying to steal his money!

Which brings us to the February 13, 2012 proposed settlement for fraud. This was a "shareholder derivative action" which means Morgan Stanley was ripping off clients by selling them junk and then got sued. There's even a website here. Part of the settlement is Morgan Stanley promises to do and be better while trying not to get caught again.

Morgan Stanley Balance Sheet Q1 2012 Total assets increased to $781 billion. The capital ratio decreased to 7.98%, which is less than desirable. Return on assets sunk to +0.38%, which is sub par and downtrending.

Morgan Stanley Income Statement Q1 2012 Morgan Stanley reported net revenues of $6.94 billion, a net loss of -$94 million, and a loss per share of -$0.06. From the prior quarter Q4 2011, these were +21%, +62%, and +60%, respectively. From the prior year Q1 2011, these were -9%, -110%, and -112%, respectively. Both the operating margin of +2.93% and the net margin of -1.36% increased QoQ but decreased YoY. The operating expense ratio is historically high at 79%.

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