Morgan Stanley Restates Q2 Earnings, Reveals Impending Case - Analyst Blog

By Zacks Equity Research,

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Following the settlement of certain mortgage-related issues, Morgan Stanley ( MS ) restated its second-quarter 2014 earnings, per its latest quarterly filing. The company's earnings per share from continuing operations now stand at 92 cents, down from 94 cents reported on Jul 17.

Notably, Morgan Stanley's adjusted earnings per share from continuing operations declined by 2 cents per share to settle at 58 cents. Yet, it still remains above the Zacks Consensus Estimate of 55 cents.

Morgan Stanley recorded an additional $53 million of other expenses owing to the settlement of certain mortgage-related issues. These included settlement of three class-action lawsuits (requiring court approvals) and approval of mortgage accord with the Securities and Exchange Commission (SEC).

Morgan Stanley will be paying $275 million to resolve the SEC's allegations of misleading investors about the quality of underlying loans while selling residential mortgage-backed securities (RMBS). This amount will be duly returned to the aggrieved investors.

Separately, Morgan Stanley also revealed a possibility of getting sued by California's Attorney General (AG) for allegedly selling risky MBS to the California Public Employees Retirement System (CalPERS) by misrepresenting facts. The MBS worth $1.3 billion were purchased by the CalPERS through Cheyne Finance LLC, a structured investment vehicle. Notably, Cheyne Finance went bankrupt in 2007 and the CalPERS lost its money.

In spite of Morgan Stanley denying the facts, the AG may sue it for seeking damages and fines. If the AG files the case against the company, it would add to the already burgeoning litigation headwinds.

Nonetheless, Morgan Stanley has a trend of restating quarterly results. Since 2013, the company had restated its results twice - May 2013 and Feb 2014 - on account of litigation settlements.

Currently, Morgan Stanley carries a Zacks Rank #3 (Hold). Some better-ranked finance stocks worth considering include The Goldman Sachs Group, Inc. ( GS ), JMP Group Inc. ( JMP ) and Raymond James Financial, Inc. ( RJF ). All these stocks carry a Zacks Rank #2 (Buy).

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MORGAN STANLEY (MS): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: RMBS , AG , MS , GS , JMP

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