Earnings Slump for Two Investment Banks

Morgan Stanley Dean Witter (MWD) and Goldman Sachs Group (GS), two of the biggest U.S. investment banks, said fiscal fourth-quarter earnings fell as revenue from trading and investment banking declined amid sliding equity markets.

Morgan Stanley’s quarterly net income fell to $1.21 billion, or $1.06 a share, from a record $1.63 billion, or $1.42 per share, last year. The results fell short of First Call/Thomson Financial’s average estimate of $1.29 a share.

Total fourth-quarter revenue was little changed at $5.7 billion.

Morgan Stanley Chief Financial Officer Robert Scott told reporters that the investment-grade and junk bond markets are still in a “wait and see” mode, while the pipeline of equity sales is backing up as continued strong demand for capital is held up by a reluctance to debut in today’s hostile environment. The backlog of merger and acquisition activity, Scott said, is “slightly below” the levels of a year ago.

Goldman Sachs, meanwhile, posted fourth-quarter earnings that showed a significant drop in trading and investment banking revenue, reflecting the general sour note in the market, while income from asset management rose.

Operating income, excluding a $180-million charge associated with the acquisition of market maker Spear, Leeds & Kellogg, totaled $781 million, or $1.50 per share, compared with $1.54 in the year-ago quarter. That topped Wall Street’s estimate of $1.38 per share.

Total net revenue was $3.42 billion, flat with a year ago.

In a conference call with reporters, David Viniar, Goldman Sachs’ chief financial officer, said the firm has a “cautiously optimistic” outlook for 2001, and although it expects to grow more slowly, the firm expects to continue adding employees.

Viniar said investment banking, going forward, looks stronger than it did a year ago.

Morgan Stanley shares lost 25 cents to close at $69 on Tuesday, and Goldman Sachs climbed $3.44 to $89.38, both on the New York Stock Exchange.