2 LUMPS OF COAL
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Morgan Stanley’s expected to ring up losses of about $1 billion when it reports its fiscal fourth-quarter earnings Wednesday.
Continued fretfulness in the stock market magnified by the latest $50 billion scandal with New York money manager Bernard Madoff, and a seizing up in credit markets, has found Morgan CEO John Mack slammed.
Morgan is said to have been particularly hard hit this quarter in areas including emerging markets and interest rates as the mortgage-inspired flu that infected the US spread to other countries.
Goldman Sachs Chief Executive Lloyd Blankfein this week also is expected to see his marquee franchise whacked by a roughly $2 billion to $3 billion loss – its first ever since going public a decade ago.
The predicted losses for both institutions will mark the first registered since the titans of Wall Street sought sanctuary by converting into bank holding companies this summer, signaling a mystifying new era in banking for the investment banks which at one time represented the gold standard of Wall Street.
Both financial firms are down significantly for 2008, with Goldman shares off nearly 68 percent since the beginning of the year and Morgan stock losing more than 70 percent of its value.
Given the losses, Mack has been compelled for the second time in as many years to forgo his multi-million dollar bonus package. That’s also the case for Goldman’s Blankfein, who scored a $75 million payout in 2007, a difficult year for many of its competitors.
However, the story this year has centered starkly on mass layoffs and shrinking business lines as Morgan and Goldman try to figure out ways to thrive as banks. And things may get worse before they get better.
Most Wall Street observers predict that more losses on leveraged loans, commercial real estate, private-equity holdings and shrunken business lines will translate into further writedowns for both banks in the first half of next year.
The gloomy outlook for the fourth quarter is in contrast to the previous quarter when Morgan reported a 7 percent drop in net income, but beat Wall Street expectations. The company had net income of $1.43 billion, or $1.32 a share, down from $1.54 billion, or $1.44 a share, a year earlier. Net revenue rose 1 percent to $8.05 billion.
Meanwhile, Goldman posted a 70 percent plunge in fiscal third-quarter net income on declining client activity and trading revenue, investment-banking losses and a slowing global economy.
Goldman reported net income of $845 million, or $1.81 a share, down from $2.85 billion, or $6.13 a share, a year earlier. Net revenue fell by half to $6.04 billion.