Morgan Stanley’s Q1 Projected Negative by Recent Bond Price Rebound

Morgan Stanley’s (MS) bottom line will be hurt by the recent rebound in its bond prices and concern that commercial real-estate woes will dent the co.’s quarterly profit, the Wall Street Journal said.

On account of the accounting treatment on some bonds issued by Morgan Stanley before the financial crisis erupted, the New York-based company is expected to take a hit of $1.2 billion to $1.7 billion on the bonds when it reports quarterly results later this month.

The bonds, valued at about $29 billion recently, rallied as Morgan Stanley distanced itself from fears last fall that it was in dire straits. However, the gains forced the firm to increase the paper value of bonds it owes to investors. Since Morgan Stanley adjusts its marks on these bonds as if they were being bought back on the open market, the more expensive liability flows to its bottom line, hurting earnings.

The first-quarter results are due the week of April 20. Analysts expect a seven-cent per share loss, down from a $1.45-a-share gain a year earlier. [via WSJ]

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