Morgan Stanley posts loss, sells stake to China

Updated: 2007-12-20 10:23

A year earlier, Morgan had income from continuing operations of US$1.98 billion, or US$1.87 a share. Morgan's results reflect the spin-off of Discover Financial Services in July.

Analysts expected Morgan Stanley to lose 39 cents a share.

Morgan Stanley's results come a day after Goldman Sachs Group Inc reported a 2 percent profit increase as its fixed income traders sidestepped the credit problems that snagged the rest of Wall Street. Lehman Brothers Holding Inc said last week that earnings fell 12 percent after US$3.5 billion in write-downs.

Morgan said US$7.8 billion in write-downs came from subprime trading positions that fell further after the bank's November 7 warning. Morgan also wrote down US$1.6 billion of mortgages held by a bank unit, commercial mortgages and other loans.

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It is a sizable loss compared with Citigroup, which last month warned it could write off assets worth US$8 billion to US$11 billion. Merrill Lynch & Co Inc wrote off US$8.4 billion in the third quarter, with more losses expected.

Morgan said it reduced its exposure to problem assets during the quarter. US subprime mortgage were pared down to US$1.8 billion on November 30 from US$10.4 billion in August.

"The fact that there's only US$1.8 billion left in subprime exposure suggests they are getting to the end," said Steve Goldman, market strategist at Weeden & Co in Greenwich, Connecticut.

The trading debacle was the first serious setback for Mack since he replaced Philip Purcell as CEO in 2005. Mack directed the bank to take on more risk and expand businesses such as mortgages and leveraged lending to boost profit and growth.

Earlier this year, those efforts were paying off as Morgan reported mortgage gains, even as subprime markets started to falter. But Morgan's proprietary bet against mortgages backfired as the market worsened beyond what traders expected.

Morgan Stanley's institutional securities unit posted a pretax loss of US$6.5 billion, compared with US$2.2 billion of pretax income last year.


Executives at Morgan Stanley said the losses overshadowed strong results from the rest of the company, including record annual revenue in many businesses and rising profit from overseas markets. Within fixed income, foreign exchange and interest rate trading, results were strong.

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