Morgan Stanley reported that its income from continuing operations dropped to just over US$1 billion for the second quarter ended May 31, compared with US$2.4 billion in the second quarter last year.
The Wall Street investment bank said net income for the quarter was US$1.03 billion, a decrease of 60% from US$2.6 billion in the second quarter of fiscal 2007. For the first six months of fiscal 2008, net income was US$2.6 billion, a 51% decrease from US$5.3 billion a year ago. Net income for the first six months of fiscal 2007 includes the results of Discover Financial Services which are reported in discontinued operations.
Net revenues were US$6.5 billion, 38% below last year’s second quarter. The annualized return on average common equity from continuing operations was 12.3% in the current quarter, compared with 29.4% in the prior year.
Equity sales and trading net revenues decreased 11% from last year’s second quarter, as strong results in the derivatives, prime brokerage and cash businesses were offset by lower proprietary trading results. Fixed income sales and trading net revenues plunged by 85% from last year’s second quarter primarily reflecting lower revenues in interest rate, credit & currency products and commodities, and net losses of US$436 million in mortgage proprietary trading. Other sales and trading included net losses of approximately US$519 million primarily related to loans as well as closed and pipeline commitments, due to losses on hedges which were partly offset by mark to market gains. Also, the firm’s investment banking revenues were down 49% from last year’s second quarter.
The firm reported that strengthened its liquidity and capital positions in the quarter by increasing average total and parent liquidity to US$135 billion and US$74 billion, respectively, and reducing the leverage ratio to 25.1x.
“Given the turbulent environment this quarter, we stayed close to shore and continued strengthening the firm’s capital and liquidity positions,” John Mack, chairman and CEO, said. “The difficult market conditions and lower levels of client activity impacted our results, particularly in fixed income and asset management. However, Morgan Stanley’s diversified business mix benefited the firm, with solid results in wealth management, prime brokerage, equity derivatives and our world-class international franchise. The careful management of our capital, risk and liquidity leaves us well positioned to continue serving Morgan Stanley’s clients and seize attractive risk-return opportunities as we see them.”