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Morgan 3Q misses mark
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September 21, 2000: 8:00 p.m. ET
U.S. investment bank posts 31% profit increase but falls short of estimates
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NEW YORK (CNNfn) - Morgan Stanley Dean Witter, the No. 2 U.S. brokerage, posted a 31 percent increase in fiscal third-quarter earnings Thursday but still missed Wall Street's estimates by a wide margin, interrupting the recent strong profit performances turned in by U.S. investment banks.
The New York-based company posted profits of $1.25 billion, or $1.09 per diluted share, for the period ended Aug. 31. That easily exceeded its earnings of $970 million, or 83 cents per share, a year earlier but fell well short of the consensus analyst estimate of $1.17 per share, as compiled by research firm First Call Corp.
The results countered a recent third-quarter trend by other top U.S. investment banks, which thus far have roundly surpassed analysts' estimates. Still, Morgan Stanley officials defended the results, noting the company is on pace to shatter last year's record profits.
"We continued to produce outstanding results, with nine-month earnings 35 percent ahead of last year's record pace," Philip Purcell and John Mack, Morgan Stanley's chairman and president, said in a joint statement. "Our third-quarter results reflect significant breadth, with record operating results in Discover Card and asset management and another outstanding quarter in the securities business."
Judah Kraushaar, an analyst with Merrill Lynch, agreed, saying the third-quarter shortfall was due to "a summer lull in activity and also the fact that investors are focused on what the broker's can do to keep taking expectations higher."
That message did not resonate with investors, however. Morgan Stanley (MWD: Research, Estimates) shares plummeted shortly after the opening bell Thursday, losing $9, or more than 9 percent, to $86.94. The shares recovered somewhat in the afternoon and closed at $89.31, off $6.62.
The company's revenues for the quarter jumped 18 percent to $6.3 billion, driven by record growth in the company's institutional and credit services.
 Like many of its peers, Morgan Stanley benefited from a surge in revenue related to equity trading. Trading revenue for the quarter jumped 43 percent to $1.6 billion, helping offset a slight decline in investment banking revenue.
The company's assets under management increased $90 billion, or 20 percent, during the quarter, while net income from credit services climbed 10 percent, driven by a 17 percent rise in merchant and Discover Card holder fees.
The results come on the heels of Lehman Brothers (LEH: Research, Estimates) trouncing Wall Street's estimates by 62 cents per share Wednesday, and Goldman Sachs (GS: Research, Estimates) and Bear, Stearns (BSC: Research, Estimates) besting estimates by 11 cents and 13 cents per share, respectively, on Tuesday.
CFO downplays Knight Trading acquisition rumors
Meanwhile, on a conference call with reporters, Morgan Stanley Chief Financial Officer Robert Scott downplayed recent rumors that the firm was interested in acquiring market maker Knight Trading Group Inc., which is widely rumored to be on the selling block.
Several Morgan Stanley competitors, including Goldman Sachs and Merrill Lynch, have announced acquisitions of market makers, firms that link stock buyers with sellers, recently, but Scott said his company is focusing on internal growth.
"We don't believe that paying $5 [billion] or $6 billion to add this kind of capacity makes sense," he said, while declining to comment specifically on an acquisition of Knight Trading.
Scott said Morgan Stanley wants to more than triple its market-making capacity "at a fraction of what people are paying to make these acquisitions." 
-- Reuters contributed to this story
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