Efficient hedging, robust investment banking fees and strong equity performance put pay to the rumours that Lehman Brothers would take a big subprime hit on Tuesday, but it’s not so good for Morgan Stanley.
Q3 results out lunchtime Wedneday BST, were well below expectations. Morgan Stanley took a 17 per cent hit to earnings – the broad sell-off in mortgage and corporate loan markets delivered a $940m blow to the broker’s fixed income and trading businesses. Unlike Lehman, Morgan Stanley also had problems in its equities trading, where a $480m loss “resulting from unfavourable positioning” held back earnings.
But things aren’t all that bad – UBS analyst Glenn Schorr said that while a difficult credit market
environment hurt the company’s leveraged lending business, “core trends” continued to perform well.
We’re still uneasy about Saxon financial, however – the mortgage originator Morgan Stanley bought for $705m earlier this year. There had been rumours of a big write down – but like Lehman, pragmatic accounting seems to be keeping fears on a leash.
Saxon gets only the briefest of mentions in Morgan Stanley’s report:
Non-compensation expenses increased from a year ago primarily as a result of higher levels of business activity, business investment and operating expenses associated with Saxon Capital, TransMontaigne and Heidenreich Marine, Inc.
No mention of a write-down there.
But who are we to rain on Wall Street’s parade? Financials just keep on tanking after the Fed cut rates by 50bp (basis points or bail out points?) Tuesday.