Many investors are wondering what is next for Morgan Stanley after their surprising year. Over the past year, Morgan Stanley has reorganized key businesses, trimmed its workforce and sold assets to enhance profits. Earnings of $481 million during the fourth quarter surpassed its $275 million loss in 2011, showing promise for the future. Morgan Stanley the sixth largest U.S. bank by assets.
However, the company’s core operations face internal and external challenges, leaving future growth unclear. 2011’s flat year reflected those challenges. “They are doing everything they can to boost returns,” said Glenn Schorr, analyst at Nomura. It has been a tricky endeavor in spite of recent successes.
Even with all of the difficulties Morgan Stanley has faced, the company appears to be much stronger than it has been in previous years. The firm has concentrated on diversifying operations and focusing its attention on safer business strategies, like wealth management. Pretax income soared 7% above last year’s results to 17%, overtaking in-house goals of 15%. The group finished 26% over the same quarter last year by posting $1.23 billion this year in Investment Banking.
Expenses were cut by laying off 1,600 employees to scale back the workforce by 7%. Reduction of the firm’s compensation plan helped bring pay levels down to 51%, down from 57% last year. Cost cutting will continue with $1.6 billion in cuts projected for the next couple of years.
The financial institution is also adapting to new regulations and a huge drop in its credit rating. Under the risk of reducing profitability, the bank is using more capital against it operations. “They have made some clear progress, but still have their work cut out for them in fixed income,” said Mr. Schorr of Nomura. Fixed income sales and trading only generated $811 million, excluding the expenses associated with the firm’s debt. Performances in fixed income have fallen far below analyst forecasts and leaving some wondering what is next for the bank.