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Morgan Stanley reported $1.55 billion in profit for its first quarter on Wednesday, dragged down by $2.3 billion in write-downs but still well above expectations.

The profit, which comes out to $1.45 a share on revenues of $8.3 billion, is 33 percent lower than what it earned for its first quarter of 2007. But it beat the average estimate of analysts surveyed by Thomson First Call, $1.03 a share, by 45 percent.

Morgan Stanley’s announcement falls in line with those from Goldman Sachs and Lehman Brothers on Tuesday, as investment banks seek to prove their stability amid continuing market fallout over the demise of Bear Stearns.

“While many of our businesses are facing challenging market conditions that we expect to continue in the months ahead, we are satisfied with how Morgan Stanley navigated the ongoing market turbulence,” John J. Mack, Morgan Stanley’s chairman and chief executive, said in a statement.

Wednesday’s report was a welcome shift for Morgan Stanley, which reported its first-ever quarterly loss, of $3.59 billion, three months ago amid a wider market plunge. Then, a swath of other investment banks were forced to turn to foreign investors to shore up their balance sheets as they reported billions of dollars in write-downs tied to their mortgage holdings, with Morgan Stanley selling a 9.9 percent stake in itself to China’s sovereign wealth fund.

Morgan Stanley said Wednesday that it had taken a $1.2 billion trading charge for its mortgages for the quarter. It also wrote down $1.1 billion tied in part to leveraged loans, or those meant to finance private equity deals.

A chief concern among investment banks in recent weeks has been to prove that they have plenty of cash on hand, hoping to prevent the sort of run on the bank that effectively killed Bear Stearns. Morgan Stanley said it had $198.2 billion in capital as of Feb. 29. The firm said that its book value per common share was $29.11.

The firm painted a mixed, if broadly positive, picture of its businesses for the first quarter. Its biggest unit, institutional securities, reported $6.2 billion in revenue, down 13 percent year-over-year. Morgan Stanley’s deal advisory business reported a 19 percent gain in revenue to $444 million, while its equity trading operations earned $3.3 billion, a 51 percent gain because of strong trading results.

But its debt trading unit — formerly its biggest revenue generator — fell 15 percent to $2.9 billion amid the firm’s write-downs. (To help improve its risk profile, Morgan Stanley also said Wednesday that its board appointed Kenneth M. deRegt, a new executive charged with overseeing risk, to the formal post of chief risk officer.)

The firm’s global wealth management unit reported $254 million in revenue, a 12 percent gain as client assets rose to $722 billion. But its asset management unit, which includes the firm’s real-estate business, posted a $161 million loss, compared to a $379 million gain at the same time last year.

Return on common shareholders’ equity, a measure of how efficiently a firm uses its capital, fell to 19.7 percent from 30.9 percent a year ago.

Separately, Morgan Stanley and Goldman said that they have used a new credit facility created by the Federal Reserve for investment banks. In an interview with Bloomberg News, Morgan Stanley’s chief financial officer, Colm Kelleher, said his firm had “tested” the window to remove the stigma of using the credit line.

“It’s meant to be there for normal business,” he said. “It’s not meant to be there as a last-recourse thing.”

The Primary Dealer Credit Facility, which is made available to those investment banks that trade directly with the Fed, will loan money to those firms in exchange for a broad range of collateral, including hard-to-sell mortgage assets.

Newyork Times

LONDON, Mar. 19, 2008 (Thomson Financial delivered by Newstex) — The dollar has shed most of yesterday’s gains in the wake of Wall Street’s sharp rally following the US Federal Reserve’s decision to lower its benchmark interest rate by three quarters of a percentage point to 2.25 pct.

After the Fed’s rate cut, which was slightly less than the market consensus for a full 100 basis point reduction, the Dow Jones index of leading US shares enjoyed its best day in five years, helping the US currency to rally too. The euro fell down towards the 1.56 usd mark while the dollar climbed back above 100 yen.

‘This rally hasn’t been sustained and there’s already a bit of a hangover after yesterday’s celebrations creeping in,’ said James Hughes, analyst at CMC Markets.

‘It’s going to be a case of simply sitting back and seeing just how far the major crosses do unwind now and whether there is any net effect of the rate news, but so far saving that quarter percent for a later cut is looking as if it may be little more than a very brief shot in the arm,’ he added.

The Fed’s accompanying statement proved to be more hawkish than many had expected. It showed that the Federal Open Market Committee (FOMC) was divided, with two of the ten governors favouring ‘less aggressive action.’
The Fed also indicated that it was giving increased attention to elevated inflation levels, thereby signalling that an end to the current rate cut cycle was fast approaching.

Antje Praefcke, currency strategist at Commerzbank Corporates & Markets, said the Fed’s stance is unlikely to comfort markets for too long, given the ongoing uncertainty in credit and financial markets, despite good quarterly results yesterday from Goldman Sachs (NYSE:GS) and Lehman Brothers. (NYSE:LEH)

‘It will take months before light is expected at the end of the write downs and revaluations tunnel and the flight into quality is likely to continue for the time being,’ said Praefcke. ‘Therefore, we think that the Swiss franc and the yen as well as the euro will push higher against the dollar.’
Analysts said renewed concerns about the credit crisis and the related economic damage are likely to set in again soon
Elsewhere, the pound will be in focus this morning when the Bank of England releases the minutes to the last meeting of the rate-setting Monetary Policy Committee and the statistics office releases the latest labour market report.

Bank watchers expect the Committee to have voted 8-1 to keep interest rates on hold at 5.25 pct in early March with David Blanchflower seen as odds on to have dissented and called for a cut.

If more vote for a cut, then the pound could be hit hard.

‘This has the potential to weigh on sterling,’ said Steve Pearson, chief currency strategist at HBOS.

Regarding the labour market report, sterling markets will be interested to see if there is a negative surprise. So far, employment levels have remained high despite signs of an economic slowdown elsewhere.

‘In the case the labour market report comes in weak, the pound will immediately head south,’ said Hans Redeker, global head of FX strategy at BNP Paribas. (OOTC:BPRBF)

Crude oil is up to the TOP

This give financial impact

NEW YORK - Wall Street fell in temperamental trading Monday as investors grappled with news of JPMorgan Chase & Co. buying the stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated into positive territory and then sank again by more than 100 points.
A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.

Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night — two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.

“This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again,” said Robert Pavlik, portfolio manager at Oaktree Asset Management.

The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate — the rate banks charge each other for overnight loans — by at least a half-point on Tuesday, and perhaps even a full point.

Still, the market remained extremely volatile. The sale of Bear Stearns — and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million — stirred fear among investors worldwide about other banks’ exposure to the troubled credit markets.

“You’re going to have some very weak players pushed out of business,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan’s buy of Bear Stearns and Bank of America Corp.’s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.

The Dow fell 128.63, or 1.08 percent, to 11,822.46, after venturing into positive territory.

Broader indexes also dropped in choppy trading. The Standard & Poor’s 500 index fell 24.45, or 1.90 percent, to 1,263.69, while the Nasdaq composite index fell 43.59, or 1.97 percent, to 2,168.90.

JPMorgan was by far the biggest gainer among the Dow components, rising $3.06, or 8.4 percent, to $40.60. The Fed essentially guaranteed JPMorgan that it would backstop any risk involved in taking over the 85-year-old Bear Stearns, which has 14,000 workers worldwide.

Bear Stearns shares fell 88 percent to $3.60 — still above the buyout price, implying that some shareholders believe the deal terms might change. About one-third of Bear Stearns stock is held by its employees.

The pain for stockholders in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank’s worth little more than two weeks ago. Bear Stearns’ buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.

Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.44 percent late Friday.

The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.

Light, sweet crude dropped $3.18 to $107.03 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.

The market’s concern wasn’t limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.

Lehman fell $11.15, or 28.4 percent, to $28.11.

This week, Lehman and other major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.

While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country’s factories, mines and utilities fell by 0.5 percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.

The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.

Declining issues outnumbered advancers by 6 to 1 on the New York Stock Exchange, where volume came to 788.3 million shares.

The Russell 2000 index of smaller companies fell 14.35, or 2.16 percent, to 648.55.

Overseas, Japan’s Nikkei stock average fell 3.71 percent, while Hong Kong’s Hang Seng index fell 5.18 percent. In afternoon trading, Britain’s FTSE 100 fell 2.25 percent, Germany’s DAX index dropped 3.09 percent, and France’s CAC-40 lost 2.32 percent.

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