Morgan Stanley (MS)

Morgan Stanley's asset management division has posted decent returns, but lags consistently behind its peers.

MS announced that it would pursue an aggressive and risky trading strategy, as well as hire additional traders. Research analyst Richard Bove believes that MS' strategy could be "too much, too little, or too late" based on disastrous past decisions, such as its inability to predict the end of the dot-com boom, its entry into the housing market at the wrong time, and entering alternative investing at again, the wrong time.^[1]

Morgan Stanley posted a net loss of $578 million, or 57 cents a share, compared with a $1.4 billion profit in the first quarter of last year. Revenue came in at $3 billion, a 62% decline from a year ago.

Analysts surveyed by Reuters estimated the investment bank would post $4.9 billion in revenue and a loss of 9 cents a share.

“People had expected the credit desk trading profits to be a pleasant surprise, and I think they were OK, but they were just overwhelmed by the negative surprises in the write-downs,” Michael Holland, founder of New York money management firm Holland & Co., told Reuters.

Real estate accounted for $1 billion of Morgan’s net losses, and a $1.5 billion more was tied to changes in the value of the bank’s liabilities.

The carnage caused Morgan to slash its quarterly dividend 81% to 5 cents a share, a move the company said will save it $1 billion a year.

Chief Executive John Mack said last month in a conference that he didn’t think now is the time to begin paying back the $10 billion it borrowed from the U.S. Treasury under the Troubled Asset Relief Program (TARP).

Since the onset of the credit crisis one year ago, Morgan Stanley's financial performance and risk management has been inconsistent, and below the levels expected of a Aa3-rated financial institution," Moody's analysts Robert Young and Peter Nerby said a press release.

The review will look at, "Morgan Stanley's ability to control risk and generate higher levels of profitability over the next one to two years," the release said. The ratings agency said "the more likely" result of its review would be a downgrade of Morgan Stanley's long-term debt to A1.