Morgan Stanley, releasing its 2nd quarter earnings Wednesday, reported a 60% drop in profit from $2.57 billon, or $2.45 a share, in the second quarter of 2007, to $1.01 billion, or 95 cents a share. Net revenue also fell a substantial 38% from $10.52 billion to $6.51 billion.
Due to difficult conditions that have consumed markets this past year, reductions in client activity and the requirements of severance pay have affected the profits of Morgan Stanley and other investment banks, the Associated Press reports.
Of Morgan Stanleys three segments, Global Wealth Management is the only one to have increased revenues, by 48%, due largely to a $698 million sale of MS Wealth Management SV earlier this year to Le Caixa, a pension and savings bank in Spain.
The pretax earnings of the institutional securities unit decreased 77% along with a reduction in revenues of 51%, while the pretax earnings of the asset management unit decreased 68%, presenting a loss of $227 million.
Morgan Stanleys lag in the mutual funds market has led to a rearranging of executives, a creation of new funds and expansion abroad. Morgan Stanley has already embarked upon a venture with a money manager in China to try and bring funds into the thriving Chinese market. Although hopeful, many skeptics have seen these attempts before with limited results.
Despite attempts to combat such harsh market conditions, investors continue to worry as they hear such large losses as $2.8 billion from Lehman Brothers announced last week.
Investors also are concerned about stricter stances taken on inflation by bankers worldwide, which will ultimately hurt their short term borrowing methods causing interest rates to rise.
Analysts from Thomson Reuters have averaged current earnings for Morgan Stanley at 92 cents per share recording a hopeful profit of $705 billion in revenues.