Morgan Stanley Drop Indicates Pre-WTC Woes

By Schmelkin, Alissa | American Banker, September 24, 2001 | Go to article overview

Morgan Stanley Drop Indicates Pre-WTC Woes


Schmelkin, Alissa, American Banker


Morgan Stanley Dean Witter & Co. said Friday that its third-quarter profits fell 41%, 1 cent per share above expectations but a clear indication that capital markets activity had been slipping long before the World Trade Center was demolished.

Morgan Stanley's report for the three month that ended Aug. 31, the first of several expected to be released in the coming days from the large New York investment banks, leaves little hope for other financial services companies with earnings highly dependent on capital markets.

Reports from Lehman Brothers Holdings Inc., Goldman Sachs Group Inc., and Bear Stearns Cos. Inc., whose third quarters also ended Aug. 31, are expected to reflect the effect of the depressed capital markets.

Like Morgan Stanley, these companies will not show the financial impact of the terrorist attacks until they post fiscal fourth-quarter earnings in December. But if commercial banks are any guide, they will probably have losses. Citigroup Inc. has already warned that its profits for the quarter that ends Sept. 30 -- which would include the damage from the attacks -- could be lowered by as much as $700 million.

On Friday, Morgan Stanley reported net income of $735 million, down from $1.25 billion in last year's third quarter, on losses to its securities business. Earnings per share of 65 cents beat the consensus by 1 cent.

Morgan Stanley said in a written statement that the third-quarter numbers do not include "an extraordinary loss, net of taxes, of $30 million, or 3 cents per share, resulting from the early extinguishment of debt."

"It was a disappointing quarter financially," Stephen Crawford, Morgan Stanley's chief financial officer, said during a conference call Friday. One indicator: return on equity of 15% fell below 18% for the first time in more than five years, he said.

"We experienced the most difficult revenue quarter we have had since 1998," Mr. …

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