Last week, in this post, I cautioned against becoming too optimistic over Goldman Sachs' recent blowout quarterly earnings.
Sure enough, yesterday's Wall Street Journal warned that Morgan Stanley is likely to report a loss this quarter, due in large part to bad commercial real estate performances.
This is precisely the sort of thing I had in mind when I wrote about Goldman. Goldman's earnings were trading-related, something at which the firm has always excelled. And it has been rather aggressive at writing down its commercial real estate holdings.
Morgan Stanley, however, seems to be reminding investors that it is an also-ran in investment banking, and, now, commercial banking, too. It plunged into real estate late and ineptly, being burned badly enough to have to plead for a commercial banking license, and actually consider behaving like one.
But, like most investment banks, Morgan Stanley doesn't really have a great deal of successful experience with holding physical assets like real estate for long term gains. This is now becoming clearer.
In fact, the drumbeat of commercial real estate troubles, which began some months ago, are growing louder and touching more companies, including GE.
I think it's way too early to declare soundness in the banking sector, or a healthy, recovering economy.
So long as joblessness continues to grow and federal spending fuels GDP, real estate lending of both types, residential and commercial, seems destined to limp along until prices finally fall to market-clearing levels.
Morgan Stanley's imminent disclosure of more real estate losses is probably just the tip of another expensive iceberg for the financial sector.
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