Morgan Stanley Is Overhead An Issue

Morgan Stanley (MS) reported decent Q3 numbers. Better than the market expected. But nowhere near last year. OK so while we are worried about credit quality and the domino effect of other defaults, lets take a look at a few other factors which may become issues.

Read this quote from the earnings release

“Net revenues decreased 20 percent to $22.9 billion and non-interest expenses decreased 10 percent to $17.3 billion.”

The market is focused on financial leverage but curiously they are not able to manage their operating leverage. Occupancy and equipment is up 10%. Compensation costs are up 3%. They seem to be gearing up not down. Professional service costs are down 10%. In today’s litigious environment to tell me that you will not need lawyers seems difficult to accept. This line item will not hold. They still have a ways to go with the house keeping.