Morgan Stanley Closes A Tough Bank Earnings Season

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By CHRISTINA REXRODE, Associated Press

NEW YORK (AP) — It's tough being a big bank these days.

Morgan Stanley, the storied Wall Street firm, said Thursday that revenue fell sharply in the second quarter, dragged down by dismal results from its investment banking unit. Its net income missed expectations, and its stock dropped sharply.

Morgan closed a bleak series of earnings reports for the country's six megabanks. The quarter was marked by choppy financial markets, growing concern about the global economy and one scandal after another.

Of the six big banks, only Wells Fargo, which brags about its plain-vanilla revenue sources like taking deposits and making loans, was the only one to pull in more money than it did a year ago.

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JPMorgan Chase was the only one of the six that didn't cut jobs, but it had its own black eye — a surprise trading that ballooned to almost $6 billion and embarrassed CEO Jamie Dimon.

For Morgan Stanley, the bleak spring also included a public-relations debacle surrounding the stock market debut of Facebook and reports that the bank withheld negative analyst reports from some clients before the company went public.

In a statement, CEO James Gorman described the April-to-June period as "an environment marked by investor caution."

Morgan Stanley stock was down 35 cents, or 2.5 percent, to $13.64 in early trading. As recently as February 2011, the stock was above $30. The other major banks were up slightly, all less than 1 percent.

Morgan Stanley brought in 24 percent less revenue overall — $7 billion, compared with $9.2 billion in the same period a year ago.

The decline was especially evident in investment banking, where revenue plunged 37 percent. The bank made far less money advising businesses and trading stocks and bonds.

The bank cited "reduced levels of client activity across all geographies and most products."

Investment banking can offer spectacular gains in good times, but it carries more risk in a weak economy and when financial markets are choppy. Government rules will soon curb some sources of income that investment banks used to rely on, such as trading for their own profit.

Goldman Sachs, which is highly concentrated in investment banking services and does not have a traditional consumer bank, is starting to expand its private banking business by lending money to its corporate clients and wealthy individuals.

Morgan Stanley is anxious to expand its stake in Morgan Stanley Smith Barney, the retail brokerage, as a way to generate steadier, if less interesting, sources of revenue. The wealth management unit, which includes Morgan Stanley's stake in the brokerage, fared the best, with revenue falling a comparatively low 4 percent.

Morgan Stanley co-owns the brokerage with rival Citigroup and wants to expand its stake to 65 percent from 51 percent. It is haggling over a price with Citi.

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Morgan Stanley shed nearly 4,000 jobs, or about 6 percent of its workforce, over the year.

The revenue decline overshadowed the fact that the bank swung to a profit. Morgan Stanley earned $564 million for the quarter, a swing from a loss of $558 million in the same period last year.

In the second quarter last year, Morgan Stanley took big charges so it could cut down on expensive dividend payments to Mitsubishi UFJ Financial Group, a Japanese financial firm that gave the bank a life-sustaining cash infusion in the depths of the 2008 financial crisis.

Earnings came to 29 cents per share, lower than the estimate of 32 cents from analysts surveyed by FactSet, a data provider.

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