Morgan Stanley Brings Market Down

Morgan Stanley, one of the few investment banks left on Wall Street, announced their quarterly earnings today. Anticipating a poor report, traders set the market price of MS's stock two dollars before yesterdays closing price. Attacking the low price, MS investors raised the average stock price briefly until the quarterly announcement was made. After noon, equity fell and never rose again, leaving the current price two dollars and twenty one cents below yesterday's closing price, an 8.97 percent drop.

Unsurprisingly, Morgan Stanley's quarterly earnings reflected a more than expected loss. While officials believed Morgan Stanley would fall around eight cents per share, their actual loss was about fifty seven cents per share, roughly $177. In order to compensate, Morgan Stanely cut dividends from twenty seven cents per share to around five cents per share. The dramatic decrease can be explained by poor equity sales, the decline in commercial real estate, and changing their primary focus to fixed-income trading.

Morgan Stanley's decline had a noticeable impact on the rest of the market. JP Morgan, a competor in the investment banking sector, fell sixty three cents, a 1.94% drop, Dow Jones composite index dropped eighty two dollars and nintey nine cents, a 1.04% drop, and the Standard and Poors 500 composite index fell six dollars and fiftey three cents, a 0.77% drop.

While the current credit freeze is a reaction to the illiquidity of "toxic" assets that have poisoned bank's finances, the decline of Morgan Stanley's quarterly earnings was well expected. The good news, however, is that the large investment banks are refinancing their balance sheets in order to pull the loan industry out of fearful spending. By focusing on fixed-income trading, and other more reliable sources of income, the investment banking sector is moving towards a less risky manner of making money. Undoubtably, the investment banking sector is allways going to be involved in some form of risk, but the banks are rethinking and therefore rebalancing their finances. Hopefully, these assets will unfreze credit, and in turn raise the economy.