Morgan Stanley (MS): Why Investors Don't Understand Financial Stocks

The Wall Street Journal reports that Morgan Stanley (MS) lost money in the first quarter. The reason appears to be a perverse accounting rule, not unlike those that have plagued bank financial reporting for several quarters.

According to the paper, “Because of the accounting treatment on some bonds issued by Morgan Stanley before the financial crisis erupted, the New York company is expected to take a hit of $1.2 billion to $1.7 billion on the bonds when it reports quarterly results later this month.”

Apparently, gains in the bonds forced Morgan to book the value of what it owes investors. The firm may also have to write down some of its commercial real estate and leveraged loans.

Trying to figure out banks’ earnings and capital needs gets more complicated by the day.

Douglas A. McIntyre