Oh, Nooo! Morgan Stanley surprised analysts this morning and posted a loss for the first quarter 2009. Just when we thought things were getting better for financial stocks.

The reported loss was $177 million, or $0.57 per share. They also slashed their dividend 81% to 5 cents per share. When compared with Goldman or even Citigroup, who both were profitable, this looks bad for Morgan Stanley.

For the quarter, Morgan Stanley posted strong trading profits, but it’s results were nowhere near as strong as Goldman’s because they the firm doesn’t have the same “risk appetite”.

The most interesting thing about their earnings was the fact that they had to take a $1.5bn hit to earnings, because their credit spreads improved and it now costs them MORE to buy back their own debt. This is the same accounting loophole that allowed Citigroup to post a $2.5bn gain when people thought it was LESS creditworthy than the quarter before. Usually it’s a good thing when your credit improves. I guess my common sense would have caused me to fail accounting class.

All is not lost however, Morgan Stanley would have been profitable for the quarter had it not been for this accounting rule. More smoke and mirrors but this time they smacked MS in the face.

Uncategorized citigroup, goldman, morgan stanley

Goldman CEO Lloyd Blankfein spoke before the Council of Institutional Investors addressing issues such as the causes of the financial crisis, wall street compensation policies, and a U.S. push towards protectionism. He admitted that compensation policies on wall street got “greedy”, but also offered specific guidelines on how employees should be compensated going forward.

• Compensation should include an annual salary plus deferred compensation, which is appropriately discretionary because it is based on performance over the entire year.

• The percentage of compensation awarded in equity should increase significantly as an employee’s total compensation increases.

• For senior people, most of the compensation should be in deferred equity. Only the firm’s junior people should receive the majority of their compensation in cash.

• An individual’s performance should be evaluated over time so as to avoid excessive risk taking and allow for a “clawback” effect. To ensure this, all equity awards should be subject to future delivery and/or deferred exercise over at least a three-year period.

• And, senior executive officers should be required to retain the bulk of the equity they receive until they retire. In addition, equity delivery schedules should continue to apply after the individual has left the firm.

The guidelines are designed to more closely align the interests of wall street employees with the interests of shareholders of their respective firms. Along with better risk management policies, the “clawback” provisions in employee compensation should discourage excessive risk taking and the frequent occurrence of “multiple standard deviation events” that we have seen during the financial crisis.

Blankfein’s speech would have not been complete without several interruptions by protesters with the organization Code Pink.

Image Courtesy of Fox Business

Uncategorized blankfein, bonuses, goldman