January 26, 2020

DealBook: Morgan Stanley Shares Fall as Investors Appear Unimpressed With Profit Report

The headquarters of Morgan Stanley in New York.Stan Honda/Agence France-Presse — Getty ImagesThe headquarters of Morgan Stanley in Manhattan.

11:32 a.m. | Updated

Shares of Morgan Stanley were down more than 3 percent in late morning trading on Thursday as investors appeared to be unimpressed with the firm’s latest results.

The first-quarter adjusted earnings exceeded analyst estimates. And the financials had some bright spots, notably strong results in the bank’s wealth management division. But the institutional securities division, which includes trading, logged a fall in revenue over year-ago levels, rattling some investors.

Roger A. Freeman, an analyst with Barclays, called Morgan Stanley’s results “a mixed bag.”

Including charges, the firm posted a profit of $1 billion, or 50 cents a share. That compares with a loss of $79 million in the period a year earlier. The results, however, were affected by one-time accounting charges related to the firm’s credit spreads.

Excluding those charges, the firm had a profit of $1.2 billion, or 61 cents a share, a decline from the $1.4 billion reported in the first quarter of 2012. The results topped the estimate of 57 cents a share among analysts polled by Thomson Reuters.

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Morgan Stanley’s adjusted revenue for the three months ended March 31 fell to $8.5 billion from $8.9 billion in the period a year earlier. Analysts had been forecasting revenue of $8.35 billion.

“Morgan Stanley demonstrated solid momentum across the firm this quarter, consistent with the strategic objectives we laid out at the beginning of the year,” the bank’s chief executive, James P. Gorman, said in a statement.

It was a tricky quarter for banks across Wall Street, and most firms posted decent but not eye-popping results. This was clearly the case with Morgan Stanley. The firm posted strong results in wealth and asset management, but institutional securities – its third major division, which includes fixed income and banking – experienced a revenue drop.

The wealth management unit, which has been a big focus for the firm since the financial crisis, has pushed into less-risky lines of business. The division, led by Gregory J. Fleming, posted pretax income from continuing operations of $597 million, up 48 percent from the $403 million reported in the first quarter of last year.

One number investors had been watching – the division’s pretax profit margin – came in at 17 percent, higher than some analysts had projected. Net revenue in wealth management rose to $3.5 billion from $3.3 billion in the first quarter of 2012.

Asset management results were also strong. The unit posted revenue of $645 million in the first quarter, 21 percent higher than in the period a year earlier.

The bank has been working to cut back its fixed income operation, in part because that is where much of the firm’s risk is embedded. Since the financial crisis, some banks have been looking to downsize this business segment and shed risk.

Excluding charges related to the firm’s credit spreads, known as debt valuation adjustment, or DVA, net revenue in institutional securities was $4.4 billion, compared with $5.1 billion in the period a year earlier. Investment banking revenue, however, climbed 15 percent in the quarter, to $1.2 billion.

While the firm’s debt and equity underwriting desks posted yearly revenue gains, most other departments did not fare as well. For instance, revenue from trading commodities and rates fell in the quarter. This decline in revenue from rates trading came despite a decision to take more risk over the last year. In rates and credit spreads, the firm’s quarterly value at risk – a yardstick of how much could be lost in one trading day – was $61 million, up from $46 million in the year-ago period.

Morgan Stanley has been aggressively cutting costs over the last year, and its worldwide work force shrunk by 7 percent, to 55,289.

Return on equity, a measure of how efficiently shareholder money is being deployed, fell to 7.6 percent from 9.2 percent in the year-ago period.

Article source: http://dealbook.nytimes.com/2013/04/18/morgan-stanley-swings-to-a-profit-beating-estimates/?partner=rss&emc=rss

DealBook: Morgan Stanley Swings to a Profit, Beating Estimates

The headquarters of Morgan Stanley in New York.Stan Honda/Agence France-Presse — Getty ImagesThe headquarters of Morgan Stanley in New York.

7:51 a.m. | Updated

Morgan Stanley on Thursday reported adjusted earnings for the first quarter that beat analyst estimates, driven by solid results in its wealth management division.

Including charges, the firm had a first-quarter profit of $1 billion, or 50 cents a share. That compares with a loss of $79 million in the year-ago period. The results, however, were affected by one-time accounting charges related to the firm’s credit spreads.

Excluding those charges, the firm had a profit of $1.2 billion, or 61 cents a share, which was down from $1.4 billion reported in the first quarter of 2012. The results did beat the profit estimate of 57 cents a share of analysts polled by Thomson Reuters.

Morgan Stanley’s adjusted revenue came in at $8.5 billion in the first quarter, down from $8.9 billion in year-ago period. Analysts had been forecasting revenue of $8.35 billion.

“Morgan Stanley demonstrated solid momentum across the firm this quarter, consistent with the strategic objectives we laid out at the beginning of the year,” Morgan Stanley’s chief executive, James P. Gorman, said in a release.

The results reflected the strides Morgan Stanley has made in building its wealth management unit, which has been a big focus for the firm since the financial crisis as the firm has pushed into less riskier lines of business. The division posted pretax income from continuing operations of $597 million, up 48 percent when compared with $403 million in the first quarter of last year. One number that investors had been watching is this division’s pretax profit margin, which came in at 17 percent, higher than where some analysts had projected. Net revenue for the first quarter in wealth management was $3.5 billion compared with $3.3 billion a year ago.

At the same time, the firm posted lower revenue in its institutional securities business, which includes fixed income and banking. The firm has been working to cut back its fixed income operation, in part because that is where much of the risk at the firm is imbedded and since the financial crisis some banks have been looking to downsize this part of the firm and shed risk.

Excluding the charges related to the firm’s credit spreads, known as DVA, net revenue for the current quarter in institutional securities was $4.4 billion, compared with $5.1 billion a year ago.

The firm’s stock was down about 2 percent in premarket trading, to about $21 a share.

Article source: http://dealbook.nytimes.com/2013/04/18/morgan-stanley-swings-to-a-profit-beating-estimates/?partner=rss&emc=rss

Cheers Are Few as Dow Jones Average Hits Milestone

The oldest and most popular gauge of the stock market on Tuesday surged past the nominal high it last reached more than five years ago, before the financial crisis hit with full force.

In the past, such a recovery would have led to celebrations on Wall Street and spread optimism about the economy. But the gain by the Dow Jones industrial average — the stocks of 30 American corporate giants like Coca-Cola, ExxonMobil and Microsoft — was a more downbeat event.

Wall Street executives were not dismissing the rally out of hand, but after several years of turbulence they were not cracking open the Champagne either.

“The market reflects an improving economy in the U.S. and abroad,” said James P. Gorman, the chief executive of the Wall Street firm Morgan Stanley. “It helps individuals through their 401(k)’s and other investments. That being said, it has been a very fast move, and prudent investors would be well served to tread carefully and look for improving economic evidence to support any moves to higher levels.”

It has taken nearly five and half years for the Dow to get this far. Now there are concerns about whether the forces that have driven the market rally — the huge stimulus actions by the Federal Reserve and banner corporate profits — will be sufficient to push it higher.

Ordinary investors, who have largely sat on the sidelines of the market, will be asking themselves whether it is time to start investing in stocks again, given the gains that have taken place.

“What’s amazing about this bull market is that people still don’t think it’s real,” said Richard Bernstein, chief executive of Richard Bernstein Advisors, a money management firm. “We think this could be the biggest bull market of our careers.”

The Dow broke through with a gain of 125.95 points, or 0.9 percent, closing at 14,253.77 on Tuesday. Since hitting a low in March 2009, with the panic of the financial crisis still fresh, the market measure has more than doubled.

The recovery is remarkable because the American housing market remains weak, Europe still has moments of severe instability, and fiscal battles drag on in Washington.

Using other yardsticks, however, the performance of the blue-chip Dow does not look quite as impressive.

The much broader Standard Poor’s 500-stock index, the benchmark favored by investment professionals, was slightly below its 2007 high even after it climbed 14.59 points on Tuesday, nearly 1 percent, to 1,539.79. And when adjusted for inflation, both the Dow and the S. P. 500 were well below their levels at the start of the last decade.

The Nasdaq composite index also surged Tuesday, rising 42.10 points, or 1.3 percent, to 3,224.13, but it remains well below its 2000 high, when it topped 5,000.

Previous highs occurred when investors believed the economy could keep growing without any extraordinary assistance. By contrast, this rally has occurred on the back of enormous monetary stimulus by the Fed and the world’s other central banks.

Since the end of 2007, five major central banks have injected some $6 trillion into the global economy, according to figures from the Bank for International Settlements. This was done to prevent bank runs and revive economies.

As the stimulus forced down interest rates, it eventually whetted investors’ appetite for riskier assets like stocks.

“Central banks do matter. Central banks have always mattered,” said David Rosenberg, chief economist at Gluskin Sheff Associates, who started work as a Wall Street economist on the day the stock market crashed in 1987.

The looming question is what will happen when the Fed stops its stimulus. Mr. Rosenberg said that after the crisis the stock market declined sharply on two occasions when the Fed signaled that it might temper its monetary easing.

“In both cases, the Fed backtracked,” he said.

Susanne Craig, Nathaniel Popper and Michael J. de la Merced contributed reporting.

This article has been revised to reflect the following correction:

Correction: March 5, 2013

An earlier version of this article referred incorrectly to the recent increase of investment in equity funds. The correct figure was $55.1 billion flowing into equity funds in January and February, not $77 billion in January.

Article source: http://www.nytimes.com/2013/03/06/business/daily-stock-market-activity.html?partner=rss&emc=rss

DealBook: Morgan Stanley’s $481 Million 4th-Quarter Profit Beats Estimates

The headquarters of Morgan Stanley in New York.Shannon Stapleton/ReutersThe headquarters of Morgan Stanley in New York.

10:12 a.m. | Updated

Morgan Stanley reported adjusted earnings for the fourth quarter on Friday that beat analyst estimates, driven by gains in wealth management and investment banking.

Including charges, the firm had a fourth-quarter profit of $481 million, or 25 cents a share. That compares with a per-share loss of 15 cents in the year-ago period.

The results, however, show continued weakness in firm’s fixed income franchise and were affected by one-time accounting charges related to the firm’s credit spreads. Excluding those charges, the firm had a profit of 45 cents a share. That handily beat the estimates of analysts polled by Thomson Reuters, which had estimated a profit of 27 cents a share.

When factoring in the charges, Morgan Stanley’s revenue came in at $7 billion in the fourth quarter, up 23 percent from the year-ago period. But for the full year, the firm’s revenue dropped 19 percent, to $26.1 billion, a significant drop that contrasts with peers. Goldman Sachs, for instance, said its annual revenue rose of 19 percent in 2012.

As a result, Morgan Stanley was forced to increase the percentage of revenue it allots for compensation: a full 60 percent of its 2012 revenue, or $15.62 billion, went to pay employees. This compares with 2011, when just 51 percent of revenue was allotted for compensation and benefits.

The high ratio could raise eyebrows on Wall Street. In 2010, Morgan Stanley’s chief executive, James P. Gorman, said that the firm’s compensation rate of 62 percent that year was a “historic high” that no one on his management team “will ever see again.” He indicated that the rate should be no higher than 50 percent.

Still, Mr. Gorman said on Friday that Morgan Stanley’s turnaround strategy, which has been underway since the financial crisis when the firm’s operations were badly damaged, was working. “We believe Morgan Stanley is at a turning point,” he told analysts on a conference call to discuss earnings.

Mr. Gorman has been working since the financial crisis to retool Morgan Stanley by shifting its focus away from potentially riskier businesses like trading and into steadier, less capital-intensive areas like wealth management. While he has notched some successes, the company still faces challenges.

Notably, the firm has reduced the size of its fixed-income department in the wake of ratings downgrades and new regulatory requirements, both of which have forced it to hold more capital against riskier trading activities, reducing profitability. This month, it laid off 1,600 employees, many of them in fixed income.

But there were areas that had notable revenue growth. Excluding the debt charge, institutional securities, which included fixed income and banking, had revenue of $3.5 billion, compared with $1.9 billion in the same quarter in 2011.

The fixed-income sales and trading unit reported adjusted revenue of $811 million for the fourth quarter, compared with a loss of $493 million in the year-ago period. Investment banking revenue also did well, increasing 25 percent, to $1.23 billion, in the fourth quarter.

Wealth management was another bright spot in the quarter, posting net revenue of $3.46 billion, up from $3.22 billion this time last year. Its pretax margin was 17 percent, which is higher than many analysts had anticipated.

Investors seem to like results, driving the company’s stock up nearly 6 percent, to $21.98, in morning trading.

Earlier this week, Goldman Sachs posted profit of $5.60 a share, which outpaced analyst expectations. Citigroup, Wells Fargo and JPMorgan Chase have also recently reported stronger year-over-year earnings.

Article source: http://dealbook.nytimes.com/2013/01/18/morgan-stanleys-4th-quarter-profit-of-481-million-beats-estimates/?partner=rss&emc=rss

DealBook: Deep Cuts Raise Questions About Morgan Stanley

Morgan Stanley's headquarters in Manhattan. The bank plans to cut 6 percent of its institutional securities unit staff.Shannon Stapleton/ReutersMorgan Stanley‘s headquarters in Manhattan. The bank plans to cut 6 percent of its institutional securities unit staff.

When Morgan Stanley’s top executives gathered in mid-September at the Gramercy Park Hotel in Manhattan to discuss strategy, some participants complained that the room was too small.

Apparently, that was the point: James P. Gorman, Morgan Stanley’s chief executive, chose the cramped quarters to force discussion among the executives, said people briefed on his decision but not authorized to speak on the record.

These days, it is the Wall Street firm that is finding itself a bit boxed in.

Regulatory demands, weak markets and lower credit ratings have weighed on all banks, but perhaps more so on Morgan Stanley, the smallest of the big Wall Street firms. In the three years that Mr. Gorman, 54, has been at the helm, the bank has been progressively shrinking its business of trading bonds, commodities and other investments and expanding into wealth management.

Now the storied company — whose take-no-prisoners trading desks have at times been rivaled only by firms like Goldman Sachs — is cutting even deeper, raising questions among some on Wall Street about whether it should spin off or ditch much of its trading business as its Swiss rival UBS has, a suggestion the firm eschews.

Morgan Stanley is planning another deep round of cuts: 1,600 jobs, accounting for 6 percent of its support work force, and, more telling, 6 percent of institutional securities, which includes its once vaunted trading business.

The planned cuts come just a week ahead of the release of fourth-quarter earnings, which are expected to show the gains the firm has made since the financial crisis in areas like stock trading, banking and wealth management but still will be weighed down by the diminished earnings power of its fixed income business.

Whether the company can avoid shrinking further — and a number of analysts say that additional cuts will be needed — and revive the fixed-income trading business will have significant ripple effects in the financial world.

While the strategy of cutting in some places and building out wealth management may lead to a more stable company, the retreat also means that the fixed-income trading business over all is becoming increasingly dominated by two Wall Street banks — JPMorgan Chase and Goldman — as well as by hedge funds and other investment firms that are more lightly regulated than banks like Morgan Stanley.

Before the financial crisis, the fixed income division at Morgan Stanley, which was created by J. P. Morgan partners when Depression-era laws forced them to split banking from trading, was one of the firm’s biggest moneymakers. Now, it is a drain on operations, producing just 20 percent of its revenue but tying up roughly half of its capital.

In recent years, the fixed-income department has not been able to make enough money to cover the cost to Morgan Stanley of this capital, according to people briefed on the matter but not authorized to speak on the record.

The fallout can be seen in compensation: a year ago, 110 of the roughly 500 managing directors in sales and trading did not get a bonus, and that number is expected to grow next week when bonuses are handed out.

Still, Mr. Gorman has received high marks from some on Wall Street for playing a difficult hand in the wake of the financial crisis. On Wednesday, he received a big vote of confidence when Daniel S. Loeb’s hedge fund told investors that it was taking a stake, saying that Morgan Stanley was “in the early innings of a turnaround.”

Still, hobbled by the new realities on Wall Street, that turnaround has so far proved to be a Sisyphean task.

The stock, said the shareholder Christopher Grisanti, has “languished.” Mr. Grisanti is the owner and co-founder of Grisanti Capital Management, which owns 690,000 shares of Morgan Stanley, valued at $13.5 million.

While the stock has risen since Mr. Grisanti bought it, it is down almost 40 percent since Mr. Gorman took over in January 2010, and big shareholders like the Bank of Tokyo-Mitsubishi UFJ of Japan, which holds a 22 percent stake valued at $8.5 billion, have had little in the way of returns. Morgan Stanley’s return on equity, Wall Street’s main benchmark of profitability, is 6 percent, down from 23.8 percent in 2006.

Morgan Stanley’s board, said people briefed on the matter, has discussed closing its fixed-income department. Instead, the firm is shrinking the unit, arguing that it is important to offer its customers those trading services. By cutting jobs and costs and exiting lines like structured products and other complex financial investments and focusing on less risky, less capital-intensive businesses like the trading of interest rates, executives contended that the division can generate a healthy return.

“We are not going to pull a UBS,” the senior executive Colm Kelleher told a private dinner of Morgan Stanley shareholders at Oceana restaurant in Midtown Manhattan.

A Morgan Stanley spokesman, Wesley McDade, said the firm was optimistic about its prospects.

“In 2013, we expect to benefit from the many strategic decisions we have taken, including an aggressive move into wealth management, a further strengthening of our pre-eminent equities and investment banking franchises, and the repositioning of our fixed income business to meet the realities of the new world,” he said.

Morgan Stanley wants to achieve a return on equity of 10 percent in the near term, and it is making progress as it continues to shed both employees and risky assets. Longer term, Morgan Stanley is shooting for a return on equity in the middle teens, according to people briefed on the matter but not authorized to speak on the record.

Critics said Morgan Stanley executives initially moved too slowly to cut business lines, and set unrealistic revenue goals for the division that were never met.

Recently, Mr. Gorman tapped one of his bankers, John Pruzan, to be his eyes and ears in meetings about the revamping of the department. Even that move was not without controversy, though. Some executives in that department, including the fixed income chief Kenneth deRegt, felt it added an unnecessary layer of management.

At the same time, while trying to squeeze risk out, it has taken some surprising ones, hiring for instance a powerful and controversial trader to run its rates desk, a primary center of growth for the fixed-income department. That trader, Glenn Hadden, is under investigation by a key regulator for his trading in Treasury futures. In 2009, he was put on leave at Goldman because of a separate trading incident.

Through Mr. McDade, the Morgan Stanley spokesman, Mr. Hadden declined to comment. A lawyer for Mr. Hadden also declined to comment, but has said that his client did not engage in manipulative activity.

The firm Mr. Gorman runs bears little resemblance to the one that existed before the financial crisis. Mr. Gorman’s predecessor, John J. Mack, pushed risk-taking, leading to a $9 billion loss in 2007, one of the largest single trading losses in history, as well as billions of dollars in additional losses because of exposure to bond insurers.

These events nearly crippled the firm, and Morgan Stanley was forced to sell a piece of itself to Mitsubishi, which injected $9 billion into the firm. Not long after, in January 2009, Morgan Stanley made another important strategic investment, combining its wealth management operations with Citigroup in a joint venture that gave Morgan Stanley control.

Still, just weeks after taking over as chief, Mr. Gorman took the stage at a Hilton in Midtown Manhattan on a cold winter day to assure a standing-room-only crowd of investors that maintaining the firm’s position as one of Wall Street’s most powerful investment banks was a top priority for him.

Even in early 2010, however, it was clear to many inside the firm that he would have his work cut out for him.

Every Wednesday, executives from various corners of the bank who belonged to what was known as the asset liability committee would meet at noon to examine the cost to the firm of everything from looming credit-rating downgrades to regulatory changes.

“It was the most depressing meeting ever,” said one attendee who spoke on the condition of anonymity. “It was very clear the Morgan Stanley we knew was never coming back.”

Article source: http://dealbook.nytimes.com/2013/01/09/deep-cuts-raise-questions-about-morgan-stanley/?partner=rss&emc=rss

DealBook: Morgan Stanley Shares Slump as Earnings Miss Estimates

Morgan Stanley's headquarters in Manhattan. The bank is transforming into a smaller, safer company that takes fewer risks.Eric Thayer/ReutersMorgan Stanley’s headquarters in Manhattan. The bank is transforming into a smaller, safer company that takes fewer risks.

5:30 p.m. | Updated

As the whipsawing markets batter the trading operations of many banks, Morgan Stanley is feeling the pain more acutely.

Although the firm reported on Thursday that it had swung to a $564 million profit in the second quarter from a loss one year ago, its revenue plunged 24 percent as the firm was hurt by a decline in revenue from trading bonds, currencies and commodities.

Wall Street banks have suffered through what has been a largely inhospitable environment, wracked with economic uncertainty and the European debt crisis. But Morgan Stanley has been required to navigate that landscape while also working to transform itself, shedding riskier businesses while building its steadier wealth-management arm.

The firm was also forced to post $2.9 billion in additional money to back its trades in the quarter, following a two-notch downgrade of its credit rating by Moody’s Investors Service. The firm had faced a potential cut of up to three levels, which would have put it just two positions above junk-bond status.

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In response, Morgan Stanley has taken several steps to clamp down on expenses and headcount. James P. Gorman, Morgan Stanley’s chairman and chief executive, said that the firm expected to shrink its employee rolls by 7 percent by the end of the year.

It is seeking to cut other expenses, including by locating more staff in cheaper locations like Baltimore and Glasgow, Scotland.

“Although global economic uncertainty remains a headwind, we are proactively positioning the firm for success,” Mr. Gorman said in a statement. “We continue to be focused on taking the necessary steps to deliver strong returns for our shareholders.”

Still, the damage that market conditions have inflicted was especially notable this quarter. Morgan Stanley’s profit amounted to 29 cents a share, widely missing the 43 cents a share that analysts surveyed by Thomson Reuters had expected.

The results did not impress investors. Morgan Stanley’s stock fell as much as 7 percent on Thursday before recovering slightly to finish the day down 5.3 percent to $13.25 a share.

Morgan Stanley’s fixed-income trading revenue plummeted 60 percent from the year-ago period and 70 percent from the first quarter, a drop that far outstrips what other competitors have reported.

Excluding accounting gains tied to the value of its debt, the company reported that revenue fell to $6.6 billion from $9 billion in the period a year earlier. Including adjustments, revenue fell to $6.95 billion from $9.2 billion in the year-ago quarter.

And return on equity from continuing operations, a prominent measure of profitability, was only 3.5 percent. Goldman Sachs, one of the firm’s top competitors, said this week that its own 5.4 percent return on equity was “unacceptable.”

By far the most notable problems lay in fixed-income trading, where Mr. Gorman is trying to move the firm from more complicated and capital-intensive products to simpler offerings. Morgan Stanley reported $770 million in adjusted trading revenue.

Ruth Porat, Morgan Stanley’s chief financial officer, said in a telephone interview that the results stemmed from the “challenging macro backdrop,” as well as clients pulling back while waiting for Moody’s to complete its review of bank credit ratings. That the agency took longer than expected to announce its results drew out the pain, she added.

“As the month wore on, clients took a wait-and-see attitude,” she said. “Time was not our friend.”

Other businesses suffered as well. Advisory revenue was halved from the year-ago period, to $263 million, as fewer corporations pursued mergers or sales of stocks and bonds. Mr. Gorman still highlighted the division’s performance, however, pointing to big mandates like leading Facebook‘s initial public offering.

(The firm has defended its work taking Facebook public, but the social networking company’s stock has fallen 24 percent since the I.P.O. in May.)

One business did show some bright spots: global wealth management, which now includes all of the Morgan Stanley Smith Barney venture that the firm took over from Citigroup. The unit reported a 23 percent gain in pretax income, to $393 million, although net revenue declined slightly.


This post has been revised to reflect the following correction:

Correction: July 19, 2012

An earlier version of this post misstated the drop in Morgan Stanley’s revenue as 35 percent, not 24 percent.

Article source: http://dealbook.nytimes.com/2012/07/19/morgan-stanley-swings-to-profit-but-revenue-falls/?partner=rss&emc=rss

DealBook: Morgan Stanley to Raise Stake in Brokerage Venture to 65%

Morgan Stanley's headquarters in Manhattan.Richard Drew/Associated PressMorgan Stanley‘s headquarters in Manhattan.

Morgan Stanley’s chief executive, James P. Gorman, has made it clear he wants to get his hands on the brokerage business it owns with Citigroup. Now, he will spend the next few months figuring just how much the business, Morgan Stanley Smith Barney, is worth to his bank.

The two financial firms will be wrangling over the value of a 14 percent stake in the joint venture, which Morgan Stanley announced that it would buy on Thursday.

It is an emblematic deal for Morgan Stanley. The financial firm has highlighted the group, which encompasses nearly 17,200 financial advisers and $1.7 trillion of client assets, as a pillar of its turnaround effort to reshape its strategy and to temper risk in the wake of the financial crisis.

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Morgan Stanley Smith Barney, led by Gregory J. Fleming, is proving to be a bright spot for its parent. Last year, Morgan Stanley’s global wealth management group, which includes the joint venture, posted net revenue of $13.4 billion, up from $12.6 billion in 2010. In the first quarter of 2012, global wealth management recorded pretax profit of $387 million, up 12.5 percent from the period a year earlier.

Despite the strength, the two banking giants may have a tough time hashing out the purchase price. One Wall Street executive joked Thursday that Morgan Stanley will be the low bid, and Citigroup will be the high one.

The joint venture was forged in the middle of the financial crisis in January 2009, when the deal was valued at roughly $20 billion. Since then, Citigroup has listed the 49 percent stake on its books at roughly the original level.

But Citigroup does not mark the price of the brokerage up or down with the market — and the bank believes it’s potentially worth more than its balance sheet would indicate. The firm has said that the midpoint of its current range of estimates for the brokerage is higher than the value on its books, according to a recent filing.

In the next week, the banks are expected to hire outside advisers to help them come up with a fair market value for their stakes. The process will be more art than science, since each side may have its own interpretation of the business.

The two banks have up to 90 days to agree on a price. But if they do not agree, an arbitrator will decide the matter.

After these negotiations are completed, Morgan Stanley will hold 65 percent of the joint venture. It has the option to buy another 15 percent next year, and the rest of it in 2014.

But Morgan Stanley is already acting like the outright owner. The firm has now moved most of the former Smith Barney advisers onto the Morgan Stanley system. It is expected Morgan Stanley will also eventually drop the Smith Barney from the brokerage’s name.

Article source: http://dealbook.nytimes.com/2012/05/31/morgan-stanley-to-increase-stake-in-brokerage-venture-to-65/?partner=rss&emc=rss

DealBook: Morgan Stanley to Cut 1,600 Jobs

Morgan Stanley plans to eliminate 1,600 jobs by the end of the first quarter of 2012, the firm said on Thursday.

“As we conduct our year-end performance management process and evaluate the right size of the franchise for 2012, we anticipate the elimination of approximately 1,600 positions across the firm globally,” Jeanmarie McFadden, a Morgan Stanley spokeswoman, said in a statement.

The reductions, which amount to about 2.6 percent of Morgan Stanley’s global work force, are expected to come across all job levels in all divisions, including investment banking, trading and support functions, according to a person with knowledge of the plans.

The 17,000 financial advisers in the Morgan Stanley Smith Barney unit are not expected to be affected by the cuts, the person said, though other employees in the unit may be laid off.

It has been a rough year for investment banks, many of which have been shedding thousands of jobs in an attempt to cut costs or stave off losses. In October, the New York State comptroller, Thomas P. DiNapoli, estimated that nearly 10,000 securities industry employees in New York could lose their jobs by the end of 2012.

The cuts are not the year’s first for Morgan Stanley, which announced earlier that it had laid off 300 low-performing financial advisers. The new round of cuts is part of an effort to buttress the bottom line and bolster profitability. In October, James P. Gorman, the chief executive, told analysts that Morgan Stanley intended to pay “those employees who are delivering value.”

Shares of Morgan Stanley rose about 3 percent on Thursday morning on news of the impending layoffs.

Article source: http://feeds.nytimes.com/click.phdo?i=d7c56b9fe0dae66f3ae4e767ea06c115

Hackers Post Fake Tupac Shakur Article on PBS Site

The PBS Web site briefly carried a fake article claiming that the famed rapper Tupac Shakur was alive and living in New Zealand after a group of hackers took over the organization’s computer systems on Saturday night.

In  addition to posting the fake news article, the group, which identified itself on Twitter as @LulzSec or The Lulz Boat, began posting passwords and e-mail addresses of people from a wide range of news organizations and other information belonging to PBS.

As late as 2:30 a.m. on Monday, PBS had still not regained control of its Web site as the hackers continued to post defaced pages.

Comments posted by LulzSec indicated that the group was unhappy with a Frontline program about WikiLeaks that recently shown on PBS. The group began posting messages on Twitter about midnight on Sunday: “What’s wrong with @PBS, how come all of its servers are rooted? How come their database is seized? Why are passwords cracked?”  That message was following by a succession of follow-up posts with links to lists of passwords and other data.

Shortly afterward, it appeared that PBS was aware of the intrusion and the news organization posted statements acknowledging the hack, and pointing out that the article about Tupac Shakur was a fake.

A NewsHour employee, Teresa Gorman, replied to questions on Sunday on the Twitter site, noting that the article about the rapper, who died in Las Vegas in 1996, was fake.

The article was posted at 11:30 p.m. on Saturday on the PBS NewsHour news blog, “The Rundown.”

The group posted a list of the material it had taken and a brief commentary: “Anyway, say hello to the inside of the PBS servers, folks. They best watch where they’re sailing next time.” The posted material included a version of the defaced page with the fake article, passwords for the new organization’s MySQL database, station passwords, Frontline logins, a map of the organization’s internal network and other material

The group has attacked other media organizations in the last month, according to Secure Business Intelligence, including Fox News and the “X-Factor” television show.

While the intruders asserted they were not affiliated with the group Anonymous, which has attacked corporate Web sites in a show of support for WikiLeaks, they may have left a clue in the form of a puzzle inserted both in the fake article and in a posting on Twitter later in the evening.

A portion of a message on LulzSec’s Twitter page mentions “a line that reads ‘yank up as a vital obituary,’ which we’ve so far been unable to comprehend.” Rachel Bevilacqua, an independent blogger who contacted The New York Times, said “yank up as a vital obituary” is an anagram for the Internet identities of four members of the group Anonymous: Topiary, Kayla, Sabu, AVunit. The four names have emerged from research done by one of the independent groups attempting to trace the identities of Anonymous, which has defended WikiLeaks in a series of Internet attacks. 

She noted that it was impossible to determine whether the hint was actually a calling card or a red herring to point suspicion at a rival group.

Article source: http://feeds.nytimes.com/click.phdo?i=fd7939a7942908ad5ccb3125b8ac01e4

DealBook: Blogging Morgan Stanley’s Annual Meeting

Morgan Stanley

There was no shortage of good topics on which shareholders can grill Morgan Stanley’s chief executive, James P. Gorman, at the firm’s annual meeting on Wednesday in Purchase, N.Y.

Mr. Gorman’s campaign to rebuild Morgan Stanley has been slow-going.

He has made some progress repairing crucial business lines. In April, he renegotiated a deal governing an expensive lifeline the firm took to bolster its balance sheet during the financial crisis.

But the firm’s stock, currently trading at about $24 a share, continues to struggle. It is 10 percent lower than when shareholders gathered for last year’s annual meeting.

DealBook was on hand for the meeting, which was held this morning. What follows is a blog of the event.

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Article source: http://feeds.nytimes.com/click.phdo?i=4e9d42c42497150e447df04add0f38c6