Morgan Stanley and Bear Stearns Cos. Inc., two of Wall Street's biggest securities firms, on Tuesday said their fourth-quarter profits rose as a flurry of mergers and a year-end stock rally boosted investment banking fees.
Morgan Stanley, the largest U.S. securities firm by market value, said net income for the quarter ended Nov. 30 was $1.2 billion, or $1.09 a share, up 18 percent from the year-earlier period.
Meanwhile, Bear Stearns, long dismissed as a bond-trading specialist, continued to put up solid results from a wide range of investment banking activities. The firm's profit rose 22 percent, to $352.6 million, from last year. Net revenue surged 19 percent, to $1.83 billion.
"The businesses that were good when markets were down, like fixed income, remain strong, and not-so-good businesses, such as M&A and investment banking, have returned," said Michael Holland, who runs money manager Holland & Co. "These firms are seeing the fruits of that."
Morgan Stanley net revenue rose just 7 percent, to $5.4 billion, falling short of Wall Street expectations. In particular, the world's leading stock underwriter lost ground in equity transactions while its fixed-income trading business again posted lower revenue.
"It was generally disappointing," said analyst Jeffrey Harte of Sandler, O'Neill & Partners, who said bottom line numbers were helped by Morgan Stanley booking lower-than-expected compensation expenses in the quarter.
"As people dig a little more deeply through the numbers, they will find the trading number disappointing for a second consecutive quarter," Harte said.
Investment banking revival
Like their rivals last week, New York-based Morgan Stanley and Bear Stearns reported a sharp rise in corporate merger advisory fees. Morgan Stanley said industry-wide completed merger and acquisition activity rose 47 percent from last year.
Morgan Stanley advised Sears, Roebuck & Co. in its recently announced merger with Kmart Holding Corp., while Bear Stearns advised Verizon Wireless Inc. in its deal to acquire NextWave Telecom Inc.
Wall Street also got a hand from a late-year stock market rally, with industry-wide underwriting volumes up 19 percent. Morgan Stanley said revenue from this business fell 7 percent from a year earlier.
The firm also continued to report problems in several businesses. Fixed-income sales and trading revenue again fell, this time by 9 percent against the year-ago period, hurt by lower interest rate volatility.
Morgan Stanley Chief Financial Officer David Sidwell attributed the decline to seasonal factors and emphasized there were no "blow-ups" in its trading book.
"No one item drove the quarter. We were a little upset we couldn't offset the seasonal slowdown," Sidwell told reporters in a conference call. "As we look into 2005. we're optimistic."
Bear Stearns
At Bear Stearns, fourth-quarter net revenue in the capital markets division -- which includes institutional equities, fixed income and investment banking -- rose to a record $1.43 billion, up 23 percent from $1.17 billion a year earlier.
While revenue from fixed-income, which has fueled strong results across much of Wall Street in recent years, represented the biggest portion of Bear's capital markets revenue for the quarter, it edged up only 4 percent, to $675.2 million.
Investment banking net revenue, however, surged 38 percent even when $160 million in gains from Bear's private investments are excluded -- reflecting a rise in merger advisory fees.