Wednesday, July 22, 2009

WFC, MS Earnings

Morgan Stanley's earnings were subpar, according to the ticker. Second-quarter income plunged 87% to $149 million from $1.14 billion, while revenue declined 11% to $5.41 billion. Although the results beat the average analyst's estimates, the stock is still trading lower before the open. The weakness in earnings came from a large loss related to the company's credit spreads tightening in the quarter, as well as the cost of paying back the $10 billion in TARP funds it owes Uncle Sam. Fixed income and investment banking revenue jumped 44% and 19% respectively, while institutional-securities swung to a loss on a revenue decline of 24%. In any event, compared to Goldman's blowout quarter, it's hard to be impressed.

Wells Fargo's second-quarter earnings soared 81% to $3.17 billion or 57 cents a share, up from $1.75 billion or 53 cents a share in the prior year. Revenue nearly doubled to $22.5 billion from $11.46 billion, with Wachovia making up 39% of the total. Still, the market is not impressed with the earnings report as the company's stock is trading lower before the open. Credit-loss provisions were $5.09 billion, up 69% from a year ago and 11% from the prior quarter. Meanwhile net charge-offs rose to 2.1% of average loans from 1.54% in the prior quarter, while nonperforming assets grew to 2.2% from 1.5%. With the continued deterioration of the economy, particularly in California, investors are perhaps concerned that the credit loss provisions aren't adequate to cover future losses on Wachovia's legacy option arm and commercial real estate portfolio.

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