A special charge pushed Morgan Stanley into the red in the fourth quarter, but the Wall Street bank still posted better-than-expected results by cutting noncompensation costs, sending its shares higher. Morgan Stanley lost $275 million, or 15 cents per share, compared with earnings of $600 million, or 41 cents per share, a year earlier. The results included a loss of $1.7 billion, or 59 cents per share, related to a settlement with MBIA Inc, announced previously.
The loss from continuing operations came to 14 cents a share, far better than the loss of 57 cents a share that Wall Street analysts had expected, on average, according to Thomson Reuters I/B/E/S. Morgan Stanley shares were up 4.8 percent in morning trade on the New York Stock Exchange.
Like its Wall Street rivals, Morgan Stanley's top-line performance showed the impact of the European sovereign debt crisis. Overall revenue dropped 26 percent, to $5.7 billion, the weakest figure since the second quarter of 2009. Despite the revenue decline, Morgan Stanley did less to cut down on pay than its Wall Street rivals. For the full year, the bank's $16.4 billion in compensation represented 51 percent of net revenue. That compares with a 42 percent compensation-to-revenue ratio for Goldman Sachs Group Inc and a 34 percent ratio for J.P. Morgan Chase & Co's investment bank.
Morgan Stanley's large wealth management business contributed to the hefty payouts. The bank paid its Morgan Stanley Smith Barney employees more than trading and banking employees combined, both in dollar terms and as a portion of the revenue of the respective businesses. Goldman and J.P. Morgan do not have significant brokerage operations, while Morgan Stanley Smith Barney boasted 17,156 financial advisers at year-end. The wealth management payout ratio was 62 percent of revenue, while for the trading and investment banking areas the ratio was 42 percent, excluding the MBIA settlement. In a conference call with analysts, CEO James Gorman said the higher payout ratio reflected deferrals of pay from previous years.