Morgan Stanley posts a profit on accounting gain

MORGAN Stanley surprised investors by staying in the black yesterday, although it did so in part only because of an accounting gain that has seen banks book huge earnings from the lower cost of their debt.

The bank reported a net profit of $2.2bn (£1.4bn) and pre-tax earnings of $3.68bn for the third quarter of this year, compared to $801m in 2010.

But $3.4bn of the 2011 figure came from the accounting gain: stripping out that effect gives a pre-tax profit of some $280m.

However, even without the boost from accounting vagaries, markets were pleasantly surprised by the results from a bank whose share price has recently been in the grip of market rumours about its exposure to troubled European countries.

The bank reported $2.11bn in net exposure to Greece, Ireland, Italy, Portugal and Spain and negative net exposure to France due to the high value of its hedges. The lion’s share of its risk is in Italy, where net exposure is $1.79bn, while it has $287m in net exposure to Greece.

Despite what chief executive James Gorman called a “turbulent” period, the bank saw its net assets under management swell by $17.5bn.

It reported putting aside $3.69bn to pay staff, the same amount as during the third quarter of 2010.