Morgan Stanley reported a bigger- than-estimated $177 million loss and slashed its dividend to 5 cents as real estate and debt-related writedowns overwhelmed trading gains. The shares fell 9 percent Improvement Live.
The first-quarter loss was 57 cents a share, New York-based Morgan Stanley said today in a statement. The average estimate of 19 analysts surveyed by Bloomberg was for a loss of 8 cents. The company also had a loss of $1.3 billion in December before the start of its new fiscal year.
The company had $1 billion of real-estate losses in the first quarter and writedowns of $1.5 billion from an accounting loss related to an improvement in the firm’s creditworthiness compared with Treasury bonds. Chief Executive Officer John Mack converted Morgan Stanley, the second-biggest U.S. securities firm, into a bank last year and announced plans in January to take control of Citigroup Inc.’s brokerage as he seeks to restore earnings and limit risks.
Morgan Stanley, which paid a quarterly dividend of 27 cents a share for the past four years, follows Bank of America Corp., JPMorgan Chase & Co. and Citigroup in slashing its dividend. JPMorgan cut its payout by 87 percent to 5 cents on Feb. 23, Improvement Live a month after Bank of America and Citigroup cut theirs to 1 cent.
“The stock isn’t really reflecting the dividend, so you might as well just go ahead and reduce it and build your capital base quicker,” said Peter Kovalski, Improvement Live a fund manager at Alpine Woods Capital Investors LLC in Purchase, New York, which oversees about $5 billion. “Right now if you have a strong capital base you sit in the driver’s seat.”
The dividend reduction will save about $1 billion a year, Chief Financial Officer Colm Kelleher said in an interview. Kelleher, 51, said the “great bulk” of December’s $1.3 billion loss, approximately $1 billion, came from writedowns on leveraged loans and residential and commercial real estate.Hintz questioned the decision to cut the dividend, which he said is the main source of cash flow for many of the firm’s employees whose net worth is tied up in restricted stock.