Morgan Stanley Posts Third Straight Quarterly Loss

Wells Fargo Reports Record Profits for Second Quarter

NEW YORK, July 22 -- Morgan Stanley, dragged down by charges related to repaying government bailout funds, posted its third straight quarterly loss Wednesday morning.

The New York-based investment bank said it lost $159 million, or $1.37 a share, for the three-month period ended June 30, worse than analysts had expected. During the same period last year, the company earned $689 million, or 6 cents a share.

The results stand in contrast to its biggest competitors. Last week, Goldman Sachs posted record earnings that far exceeded Wall Street expectations.

Morgan Stanley's results were hurt by a $850 million charge for repaying $10 billion in government rescue funds the bank received under the Troubled Asset Relief Program. The bank also was hurt by an accounting rule related to the value of its debt, which requires the firm to set aside more money when its debt is worth more in order to meet those obligations. The firm's narrowing debt spread suggests that the market seeks less risk in Morgan Stanley's debt.

"Morgan Stanley would have been solidly profitable this quarter if not for these two positive developments," John J. Mack, Morgan's chairman and chief executive, said in a statement accompanying the results. He added that although the bank showed improved performance in areas such as underwriting stocks and bonds, "we are not satisfied with our performance in other key areas of fixed income trading and in asset management, and we are taking steps to deliver better results in those businesses."

Meanwhile, another banking giant, Wells Fargo, said this morning that it posted record profits for the second quarter, adding to the number of large banks reporting better-than-expected results.

Earnings for the three-month period ended June 30 rose to $3.2 billion, or 57 cents per share, from $1.8 billion, or 53 cents a share, during the same period last year, the San Francisco-based bank said. Contributing to the results was strong mortgage banking activity. Analysts surveyed by Thomson Reuters had forecast earnings of 34 cents per share.

Roughly 40 percent of the $22.5 billion in revenue for the most recent quarter came from Wachovia, a bank that was on the verge of collapsing under bad loans that Wells Fargo acquired late last year.

But Wells Fargo, like other retail banks, faces mounting losses from loans on its books. The company said it recorded a $5.1 billion charge for loan losses in the second quarter.

In May, federal regulators told the company to raise $13.7 billion in additional capital as part of the government's "stress tests" on the nation's largest banks. During the quarter, Wells Fargo raised $8.6 billion through a common stock offering.

Competitors such as J.P. Morgan were among the handful of banks rushed to return the federal bailout money following those stress tests. Wells Fargo, which has taken $25 billion in government funds, have yet to do so.

"Our top priority is to integrate Wachovia into Wells Fargo as smoothly and efficiently as possible," said Wells Fargo chief executive John Stumpf, adding, "We intend to pay back the government's investment in Wells Fargo on behalf of U.S. taxpayers in a shareholder-friendly way. We will work closely with our regulators to determine the appropriate time to repay the funds while maintaining strong capital levels."