Colin Barr

Following the money in banking, economics, and Washington

Morgan Stanley profit plunges

October 20, 2010: 7:44 AM ET

Morgan Stanley is the latest bank to enter the trading twilight zone.

Third-quarter profits fell 67% from a year ago, Morgan Stanley (MS) said Wednesday morning. The culprit: weak volume in the trading businesses that only a year ago were fueling Wall Street's resurgence.

Consolidating at lower levels

Morgan Stanley made $313 million, or 5 cents a share, from continuing operations for the quarter ended Sept. 30. That compares with a year-ago profit of $936 million, or 50 cents a share. Revenue tumbled 20% from a year ago, to $6.8 billion.

Even that modest profit was bolstered by a tax gain, without which the firm would have lost 7 cents a share for the latest quarter.

Analysts surveyed by Thomson Financial were looking for a 15-cent profit at Morgan Stanley. But Wall Street's profit expectations for Morgan Stanley and Goldman Sachs (GS), which reported a 40% earnings decline Tuesday, have been falling sharply for about three months.

The weak trading environment hammered results at the firm's institutional securities business, where revenue dropped 42% from a year ago and pretax income tumbled to $240 million from $1.3 billion a year earlier.

"Although we continued to make progress across some key businesses this quarter, our results in aggregate clearly do not reflect the true potential of Morgan Stanley's global client franchise and I am not satisfied with our overall performance," said CEO James Gorman. He said the sales and trading business "was clearly muted," but pointed to "broad-based strength in Investment Banking and improved performance - and positive flows - in both Wealth Management and Asset Management."

This softening profit picture and the ever-expanding legal and regulatory challenges facing the financial industry have soured investors on the big banks. Morgan Stanley shares are down 15% this year.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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