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