Morgan Stanley hit by big losses

Losses were worse than expected

US investment bank Morgan Stanley has reported a first-quarter loss of $177m (£121.9m), down from a profit of $1.4bn in the same quarter last year.

The bank - hit by real estate and debt writedowns - cut its dividend to five cents a share from 27 cents. Revenues fell 62% from a year earlier to $3bn.

Despite challenging markets, performance has improved, it said.

Banks have been severely affected by the credit crisis and market turmoil, as well as exposure to bad debts.

"While challenging markets continued to impact our results this quarter, we saw improved performance across most of our businesses during the past three months," John Mack, its chief executive, said.

Dividend cuts make sense in this environment David Dietze, Point View Financial Services Debt overshadows bank's profit

"The firm delivered strong results in investment banking, commodities, interest rates and credit products as well as solid performance in global wealth management," he said.

Morgan Stanley would have recorded a profit, he said, "if not for the dramatic improvement in our credit spreads - which is a significant positive development, but had a near-term negative impact on our revenues".

The bank's shares fell 7.4% to $22.82 after the announcement.

Reality check

This is the bank's second quarterly loss and Carl Birkelbach, head of Birkelbach Management in Chicago, described it as a reality check.

"We thought that fourth-quarter earnings were going to be where the chief executives throw in the kitchen sink to get everything out of the way. It now appears we have got one more quarter of it and I think that will affect stock prices," he said.

Added David Dietze, president at Point View Financial Services: "Dividend cuts make sense in this environment... everyone else is doing it and you want to be safe rather than sorry."

Earnings season

Morgan Stanley is the latest bank to report results.

Earlier on Wednesday, Wells Fargo has confirmed it made a record profit of $3.05bn in the first quarter of this year, thanks to better than expected results at newly-acquired Wachovia.

Also this week, concerns about debt levels at Bank of America overshadowed its better-than-expected profits for the first three months of 2009.

The US's largest bank set aside $13.4bn to cover credit losses, from the fourth quarter's $8.5bn.

Last week rival Citigroup reported its first quarterly net profit in nearly two years.

Citi's results came soon after positive earnings reports from Wells Fargo, Goldman Sachs and JP Morgan.