Will Morgan Stanley join banks' Q1 profit parade?

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Will Morgan Stanley (MS) join its rivals and beat the market's expectations for its first-quarter results? With Goldman Sachs (GS), JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C) all far outperforming analysts' predictions, plenty of investors will be looking for Morgan to follow suit when it announces tomorrow morning.

With analysts forecasting a loss of eight cents a share, the bar Morgan Stanley has to clear certainly is low. But Morgan Stanley's results will probably reflect the effects of forces pulling in opposite directions, and it's entirely possible it won't join its peers in posting a first-quarter profit.

As with Goldman Sachs, Morgan Stanley's bond, currency and commodities trading operations likely will report big increases in profit thanks to an upward-sloping yield curve. But accounting rules governing how the company values its own debt, which has seen its price rebound lately, may lead to a loss of between $1.2 billion and $1.7 billion, The Wall Street Journal reported earlier this month.

Then there is Morgan's $78 billion portfolio of difficult to value investments in corporate loans and instruments linked to residential and commercial mortgages. Tomorrow's announcement may shed light on how much relief recent changes to accounting rules have provided.

Because the market's reaction to earnings announcements are all about expectations, Morgan Stanley may be able to impress investors without turning a profit. But with its biggest competitors all managing to annihilate analysts' expectations, the company may find a quarter that's merely less bad than many feared won't be good enough.
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