Chillin' out till it needs to be funded
Even as credit spreads tightened and the resulting CVA of $2 bln brought down net revenues and earning, excl CVA adjustments Morgan Stanley rode out expectations of underperforming the year ago quarter’s performance with a 72 cent or $1.366 bln profit, non comp expenses of $2.3 bln and compensation expenses of $4.4 bln incl severance in a $8.9 bln topline quarter. The drop in existing sales of homes by 2.6% and continuing weakness in single family housing starts did not affect the market as it was also largely along expected lines and leading indicators were up. Housing prices continue weak raising hopes of retail participation in a market fueled by REIT investors even in Arizona, Florida and California.
Morgan Stanley’s trading income was mostly obliterated by the CVA adjustment to $2.2 bln from $4.1 bln while fee income was a paltry $851 mln as forewarned though the firm continues to claim #2 position behind $1.2 bln rich Goldman Sachs and $1.35 bln rich JP Morgan who were also able to excuse themselves without enough munition in Leveraged Finance and HY markets in the quarter.
740,000 Housing starts, 178,000 in Multi family units, stinged by building permits, were followed by a seasonally adjusted 4.48 mln in sales, and a jobless claims number back at 400k with a 386,000 scoref or the week, negated the continuing improvement in the MBA report even as banks blame regulations for the virtual non existence of the MBS market for any banks and refi units while retail refinancing and the inching up moving average in purchases were the real news.
The larger mortgage and SME books of BofA were the likely reasons for a $4.8 bln CVA hit from improving conditions in the credit markets for a $0.28 cent hit to a 3 c profit or a 31 cent profit much ahead of 12 cent expected profits increased in earnings estimates just two weeks ago. Market conditions improved to a $5.45 bln profit, $653 mln after CVA. $27.3 bln in revenues including the more standard NII in the topline of $11 bln. Global Markets revenue was back at $5.6 bln before CVA adjustments of $1.4 bln and profits similarily from Global market dialed to a $2.2 bln. Global banking was a staid $4.4 bln and Consumer and Business Banking was a better $7.4 bln with 10,000 less employees than last year and 3100 lesser than December 2011 with 1500 older and 2500 new evaluations pending in Project New BAC. The retail unit was outshone by $4.4 bln from the ML unit of Wealth and Investment Manaagement with a 12.78% RoE reported in the segment to 11% in branch banking
Valuation losses of $4.8 bln in non Interest income brought it down to $11.5 bln instead of $16.3 bln which would been higher than last year. The bank was also able to approve a dividend earlier last week.