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Banking

Morgan Stanley 4Q Profit Jumps on Strong Investment Banking

Morgan Stanley (NYSE: MS) said that its earnings rose 60 percent in the last quarter of 2010 on strong investment banking results.

 

The second-largest U.S. investment bank grossed $ 600 million or 41 cents a share after paying preferred stock dividends. In the same period in 2009, its profit was $ 376 million, or 29 cents a share.

 

It posted stronger-than-expected quarterly revenue which increased 14 percent to $ 7.8 billion. Retail brokerage profit also jumped.

 

During the financial crisis, Morgan Stanley was on the brink of failure. The New York bank had to struggle to find its footing following the financial crisis. Thus, good results in the last three months of 2010 marked a turnaround for the bank.

 

In 2009, it began reducing its reliance on trading and risk-taking for profit. At that time, the bank lagged well behind Goldman Sachs Group Inc.

 

Goldman Sachs posted weak investment banking results Wednesday. Its revenue dropped 12 percent from debt underwriting.

 

On the other hand, Morgan Stanley’s revenue rose 15 percent thanks to issuing more junk bonds. Revenue from advising companies on deals shed 9 percent to $ 484 million while revenue from stock underwriting added 5 percent to $ 661 million.

 

Morgan Stanley’s chief financial offer Ruth Porat said that the bank’s clients had more confidence in the economic recovery. Retail clients’ tentative return in the summer led to a big increase in assets.

 

The investment’s payrolls also increased, compared to one year ago. It increased the amount of deferred compensation which was up 20 percent from 40 percent in 2009.

 

Morgan Stanley operates in three business segments namely Institutional Securities, Asset Management, and Global Wealth Management Group. Revenues at Morgan Stanley’s Smith Barney brokerage rose 0.3 billion from $ 3.1 billion in 2009.

 

At that year, the bank acquired Smith Barney from Citigroup. In April 2010, part of Morgan Stanley Smith Barney was reported to launch a new web-based broker workstation called 3D.

 

Economics is the study of our lives,our jobs, our homes, our families and the little decisions we face every day. Thus, I am keen on reading and studying economic issues.

Money

Three Big Money Profit Stocks

The American corporate profit machine is in full swing:

 

Stock market darling Google Inc. (NASDAQ/GOOG) reported late last week that its third-quarter profit hit $ 2.73 billion on sales of $ 9.72 billion. Earnings and revenue grew 26% and 33%, respectively, from the same period of last year.

 

This morning, troubled Citigroup, Inc. (NYSE/C) announced that it made $ 3.8 billion in its third quarter, an increase of 60% for the third quarter of 2010.

 

Another big U.S. bank, Wells Fargo & Company (NYSE/WFC), announced this morning that its third-quarter profit rose 21% to $ 4.1 billion from $ 3.34 billion in the third quarter of 2010.

 

What do these three companies have in common? They all beat stock market analyst profit expectations. Collectively, these companies booked profits of $ 10.63 billion in the three-month period ended September, 30, 2011.

 

While stock market analysts have been cutting their earnings expectations for corporate America, third-quarter earnings growth have been better than expected. Bellwether General Electric Company (NYSE/GE) reports its third-quarter profit later this week—and I believe it will surprise on the upside as well. The stock market has been very kind to this stock as of late.

 

Corporate America is faring better than what was expected. Again, I believe stock market advisors became too negative too quickly this summer. On the backdrop of negative stock market sentiment and rising corporate profits, the stock market is riding the wall of worry quite well.

 

But there is a big negative for the economy. Public companies will do whatever it takes to make their shareholders happy. And happiness comes from the higher stock market prices of companies. If earnings growth isn’t happening fast enough, companies will cut expenses to bring profits up. In most cases, payrolls are cut first, further impacting the unemployment rate in America.

 

Just look at these two reports from this morning:

 

The world’s biggest maker of lightbulbs, Amsterdam-based Royal Philips Electronics NV, a company most investors simply refer to as Philips, announced Monday that it plans to cut 4,500 employees to boost profits.

 

Lowe’s Companies, Inc. (NYSE/LOW), the big U.S. home-improvement retailer, said this morning that it will cut about 2,000 jobs and close 20 underperforming stores, as it tries to maximize profits.

 

Bottom line: companies are reporting better profits than expected. These same companies will trim payroll “on a dime” to improve earnings. Better earnings result in higher stock market prices. Stock market advisors were wrong in jumping into the bear market camp this summer. The stock market will ride the wall of worry higher, as the bear market rally continues.

 

With Profit Confidential we analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!