Morgan Stanley swings to loss, badly misses expectations

A series of surprisingly strong first-quarter earnings announcements from banks have helped sustain the stock market rally over the past few weeks. But Morgan Stanley (MS) won't be joining the parade, as it reported a loss of $177 million, or 57 cents a share, wider than analysts anticipated.

During the first quarter of last year, Morgan Stanley posted a profit of $1.4 billion, or $1.26 a share.

Although analysts expected Morgan Stanley to post a modest loss of eight cents a share, investors likely had their eyes on better results after the company's chief rivals -- including Goldman Sachs (GS), JPMorgan Chase (JPM), Citigroup (C) and Bank of America (BAC) -- all beat consensus estimates.

As expected, Morgan Stanley recorded a $1.5 billion loss because of the way it accounts for the rising value of some of its bonds. But that wasn't the only force behind its worse-than-anticipated results, as the poor performance of its commercial real estate portfolio lead to $1 billion in losses in the quarter.

While rival Goldman Sachs was able to post big year-over-year gains in their interest rate, currency and commodity trading operations, Morgan Stanley didn't follow suit. While it earned $2.4 billion during last year's first quarter, it posted just a $1.3 billion profit from the division this year.

And, on top of it all, the company's results would have been worse by 33 cents a share if not for a tax benefit it reaped by bringing earnings housed in oversees subsidiaries back to the United States at lower-than-expected tax rates, its said.

Another blow to earnings came from some $401 billion in dividends Morgan Stanley paid on preferred shares. Of course, one of the most notable holders of the company's preferred stock is the U.S. government, which invested $10 billion from the Troubled Asset Relief Program in Morgan Stanley to stabilized its balance sheet.

Paying the dividends cost the company 40 cents a share in profit, a hefty chunk to be sure. There was no word in the press release accompanying the release on whether Morgan Stanley plans to try to repay its TARP investment early -- but given its impact on earnings, it may well come up in the conference call with analysts scheduled for later this morning.

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