Morgan Stanley 2Q loss hurt by preferred stock conversion

Morgan Stanley (MS) swung to a second-quarter loss, as a $1.7 billion charge to convert preferred stock hurt results. The investment banking giant reported a loss of $558 million, or 38 cents a share, for the three months ended June 30, down from income of nearly $1.6 billion, or $1.09 a share, last year. Results for the quarter include a loss of $1.02 a share from the conversion of Series B preferred shares held by Mitsubishi UFJ Financial Group Inc. Second-quarter revenue rose 17% to $9.28 billion from $7.96 billion a year ago. Morgan Stanley said second-quarter results include revenue of $244 million from movement in credit spreads on certain long-term and short-term debt. The same debt valuation adjustments resulted in a loss of $189 million in the first quarter and $750 million of positive revenue a year ago. The institutional securities division reported second-quarter pretax income from continuing operations of $990 million, down 28% from about $1.4 billion a year earlier. Investment banking revenue for the quarter rose 57% to nearly $1.7 billion from $1.08 billion a year ago with increases in advisory and underwriting volume. Equity sales and trading revenue rose to $1.9 billion on gains in market share. “While global markets remained challenging this quarter, the firm delivered higher year-over-year revenues across our three major business segments. Equities achieved further client gains as revenues rose despite a fall in overall market volumes,” according to President and Chief Executive James Gorman. Morgan Stanley said its Tier 1 capital ratio was about 14.6% with a Tier 1 common ratio of about 16.8% at June 30. “With this additional capital cushion and the clear momentum across our main businesses, we are well positioned to help our clients navigate the constantly changing markets and create additional value for our shareholders,” Gorman said. Write to Jason Philyaw.