Morgan Stanley Beats Expecations, Uses Odd Accounting Practice To Show Strong Gains

Despite a down economy financial firm Morgan Stanley on Wednesday surprised Wall Street analysts by posting stronger than expected profits for Q3 2011.

The company’s profits were assisted by a large accounting gain and increase in stock-trading revenues. It should be noted that $1.12 per share of the company’s gains come because of an accounting practice that allowed them to book gains when the value of their own debt declined.

Shannon Stemm, financial services analyst for Edward Jones told Reuters:

“Morgan Stanley has proved it can definitely get in there with the heavy hitters,” while adding, “Especially as Goldman is losing its ground a little bit here.”

Shares at Morgan Stanley jumped by 6.6 percent during early trading on Wednesday and then remained unchanged at $16.63 by end of day.

In their financial disclosure Morgan Stanley posted third-quarter earnings of $2.15 billion or $1.15 per share, that number compares to a 7 cent per share loss during the same period in 2010. The company also showed revenue climbing to $9.89 billion, a 46 percent jump.

Morgan Stanley could face mounting troubles over the next quarter as Greece, Ireland, Italy, Spain and Portugal continue to deal with the European debt crisis. Currently $5.69 billion of the company’s overall $60 billion net worth is held in those regions, including $2.1 billion in hedges.

The firm could face exposure problems in France where Moody’s recently announced that the country could be the next to face a credit rating downgrade, Morgan Stanley as of September 30 has $1.53 billion worth of exposure in the country or negative $286 million including hedges.

Do you believe Morgan Stanley will continue to report revenue and profit increases during the current worldwide economic crisis?