Morgan Stanley’s decision to report its third-quarter results a day early doesn’t seem to have calmed Wall Street’s fears about the viability of its business model.
The investment bank’s shares plunged 38 percent Wednesday morning amid a broad sell-off in the market that hit financial stocks especially hard. The downdraft also caught Goldman Sachs, whose shares were down 20 percent in late-morning trading.
CNBC.com reported that if Morgan Stanley’s stock continues to plummet, its executives may need to change course and pursue some kind of merger, as its rival, Merrill Lynch, recently did with Bank of America. But Tuesday afternoon, in a hastily arranged conference call, a defiant-sounding Colm Kelleher, Morgan Stanley’s chief financial officer, forcefully disputed the notion that his investment bank needs to link up with a commercial bank in order to survive.
"We believe in the diversified business model of the investment bank and its ability to adapt to different environments," Mr. Kelleher said. "Depository institutions do not better enable us to execute our business and may in fact bring with them their own set of complications."
Morgan and Goldman Sachs are the last two major, independent Wall Street firms now that Bear Stearns, Lehman Brothers and Merrill have either collapsed or sold themselves.
Given the recent carnage on Wall Street, many are wondering whether these two firms will eventually succumb and merge with commercial lenders as Bear and Merrill have done.
But on Tuesday, Morgan Stanley tried to show that it could successfully go it alone.
Despite the turbulent quarter, its third-quarter earnings beat the average estimate of stock analysts, thanks in part to higher-than-expected profits from its equities and commodity trading businesses. Its earnings were only 3 percent lower that the comparable quarter a year ago; earlier in the day, Goldman Sachs had reported 70 percent earnings decline.
Morgan Stanley also said its leverage ratio fell to 23.5 times its capital base, and it hinted that it may begin buying back its shares.
At first, the market seemed to like what it heard, sending Morgan Stanley’s stock up around 5 percent in after-hours trading.
Given the relatively positive earnings, Mike Mayo, an analyst from Deutsche Bank, asked why the firm decided to report early and what it wanted to highlight.
"I want to have a building block and bridge to rebuild confidence in this market where things are frankly getting out of hand and ridiculous rumors are being repeated." Mr. Kelleher said. "I think it is important to get some sanity back in the market."
If he was hoping for an even-keeled market, though, Mr. Kelleher was surely disappointed on Wednesday. Investors sent shares of his company crashing to a new 52-week low.
