Morgan Stanley Adjusts to New Banking Climate

Morgan Stanley and Goldman Sachs had not reported earnings on the same day since the darkest phase of the financial crisis in 2008, but they did so again on Thursday.

Morgan Stanley probably enjoyed the coincidence more.

Bucking a bearish start to the year on Wall Street, Morgan Stanley’s first-quarter adjusted income of $1.39 billion was an 18 percent increase compared with results in the period a year earlier.

In contrast, Goldman’s $2.03 billion of net income was a 10 percent drop. Morgan Stanley’s shares, which have soared over the last year, climbed an additional 2.9 percent on Thursday, while Goldman’s edged 0.14 percent higher.

More than bankers’ bragging rights is at stake, though.

The firms’ divergent first-quarter results provide important clues to assess the degree to which Wall Street is changing in the face of an onslaught of new regulations since the crisis. To some analysts, Morgan Stanley’s solid first quarter provides further evidence that it has adapted better than its rivals to a regulatory environment in which banks are less able to swing for the fences.

Morgan Stanley still does a lot of trading, and that business contributed considerably to its first-quarter performance.

But since the crisis, it has placed much more emphasis on wealth management, a business that, if managed properly, tends to have fewer costly surprises.

“I think Morgan Stanley got the memo early to reposition its business model for the post-crisis era,” said Mike Mayo, a bank analyst at CLSA. “They acted more quickly.”

One of the big challenges for Wall Street firms is knowing what to do with operations that trade bonds, commodities and derivatives linked to interest rates. Known as fixed income, this business has typically been a huge earner for banks, but it has also been the source of some of their biggest losses. In the run-up to the crisis, Morgan Stanley traders made a huge bet on mortgages that backfired terribly, saddling it with billions of dollars in losses.

A number of new regulations have since been introduced to make fixed income safer, and they seem to have caused banks to cut back in this business in recent years. Morgan Stanley’s fixed-income performance has been uneven in the last few years, which has helped prompt management to restrain its size.

Goldman, however, has had more consistently positive results from its fixed-income division in recent years and has continued to treat it as a dominant part of its operations.

In the first quarter, 31 percent of Goldman’s revenue came from fixed-income trading. At Morgan Stanley, that figure was 19 percent. “The most volatile part of the firm is now a relatively small part of the firm,” James P. Gorman, chief executive of Morgan Stanley, said to CNBC on Thursday.

Morgan Stanley’s fixed-income business was actually a bright spot in the quarter, with revenue rising 9 percent, to $1.65 billion. Morgan Stanley’s revenue from equities trading also rose â€" and was higher than Goldman’s in the first quarter. The bank said that much of that strength came from its prime brokerage business, which lends to hedge funds and handles their trades.

“The deeper we go with clients, the deeper they go with us,” Ruth Porat, chief financial officer at Morgan Stanley, said in an interview.
As the trading revenue ramped up, Morgan Stanley’s wealth management unit continued to do well, reporting first-quarter pretax income of $691 million, a 16 percent rise from $597 million in the same period of 2013.

Looking back, Mr. Mayo gave some credit to Mr. Gorman, a former consultant with McKinsey, for the strategic plan that appeared to help achieve these results.

“People have had concerns about the C.E.O. They said he was not a trader or a banker,” Mr. Mayo said. “But investors are coming round to the idea of having a strategic thinker at the top of the organization.”

Still, it might be too early to hail Morgan Stanley as a standard-bearer for a new Wall Street. It still greatly lags behind Goldman in a crucial measure of profitability. Morgan Stanley’s return on equity â€" a yardstick that tries to measure the profit shareholders are earning on a bank’s equity â€" was 8.9 percent in the first quarter. That was substantially below the 10.9 percent return on equity that Goldman posted for the period.

Morgan Stanley may find it hard to catch up. In a conference call with reporters, Harvey M. Schwartz, chief financial officer at Goldman, said that the industry would find it a “herculean task” to substantially increase return on equity from current levels.

And Morgan Stanley may need to further increase its capital to comply with new regulations, an exercise that could make it even harder to improve its return on equity.

Morgan Stanley’s fixed-income operations could also disappoint again.

The bank attributed some of the unit’s improved performance to trading in commodities, an area in which Wall Street firms have recently found it hard to make money.

But it is not clear whether commodities will continue to bolster Morgan Stanley’s results. Bad weather during the first quarter prompted higher activity in commodities trading, and Morgan Stanley is also selling some physical oil operations that helped lift the quarterly results.

Ms. Porat, Morgan Stanley’s chief financial officer, said that fixed-income revenue would still have been up in the first quarter without the physical oil operations. She added that trading in mortgage, municipal and corporate bonds performed well, and noted that “rates” trading, which focuses on government bonds and interest-rate swaps, was weaker.

Net revenue at Goldman’s struggling fixed-income unit fell 11 percent, to $2.85 billion. The firm attributed the decline to “significantly lower” revenue from interest rate products, currencies and mortgages.

Over all, Morgan Stanley, on an adjusted basis, earned 68 cents a share in the first quarter, an increase from 60 cents a share in the period a year earlier. Analysts had expected the firm to make 60 cents a share, according to data from Bloomberg. Adjusted revenue rose to $8.8 billion from $8.48 billion.

Goldman posted earnings of $4.02 a share in the first quarter after payment of preferred dividends, down from $2.26 billion, or $4.29 a share, in the period a year earlier. Wall Street analysts had been expecting profit of $3.44 a share, according to data from Thomson Reuters. The bank generated $9.33 billion in net revenue, down from $10.09 billion in the period a year earlier.

Goldman’s investment banking unit benefited from an industrywide surge in mergers and acquisitions. That division generated net revenue of $1.78 billion, the highest quarterly figure since 2007 and an increase from $1.57 billion in the first quarter of 2013.

“We are generally pleased with our performance for the quarter given the operating environment,” Lloyd C. Blankfein, chief executive of Goldman, said in a statement.

From Marc Andreessen, a Lesson in Corporate Finance

The valuations of highflying technology companies can seem baffling to those not initiated in the ways of Silicon Valley.

Deals like Facebook’s $16 billion purchase of WhatsApp, a company that makes very little money, or its $2 billion acquisition of Oculus VR, a start-up that has not yet shipped a product to the public, can make a Wall Street banker’s head spin.

But mergers and acquisitions in technology follow a different set of rules, according to Marc Andreessen, a prominent venture capitalist who happens to sit on Facebook’s board. In a series of tweets on Thursday, Mr. Andreessen offered a framework for thinking about technology valuations â€" relying on metrics that hard-nosed financiers tend not to consider.

Here is a selection of his tweets.

One pseudonymous Twitter user from the world of investment banking, known as the Epicurean Dealmaker, nodded to Mr. Andreessen’s lesson.

.@pmarca currently giving a masterclass on the sources and methods of valuation for technology firms. Not standard i-bank stuff.

â€" Epicurean Dealmaker (@EpicureanDeal) 17 Apr 14

Virtu Financial Said to Shelve I.P.O. Plans

The high-frequency trading firm Virtu Financial, which had expected to go public this month, has decided to postpone those plans indefinitely, a person briefed on the matter said on Thursday.

The decision stemmed from the recent storm of negative attention on the high-frequency trading industry and the stock market performance of companies similar to Virtu, said the person, who was not authorized to discuss the matter publicly. Earlier this month, Virtu moved to postpone its initial public offering by at least a week.

The business of high-frequency trading, which uses computer algorithms to buy and sell shares in milliseconds, has been at the center of a raging debate on Wall Street ever since the publication in late March of “Flash Boys,” a new book by Michael Lewis that claims the stock market is rigged in favor of these lightning-fast traders.

In conversations before the planned I.P.O., prospective investors advised Virtu to wait to let the storm pass before tapping the public markets, the person briefed on the matter said. With the latest decision, the timing of a potential I.P.O. is not known.

A major factor in the decision was the recent market performance of companies that are in related businesses. Shares of KCG Holdings, another trading company, are down about 13 percent since the Friday before the book was released. Shares in one exchange, the CME Group, are down 6 percent, and in another exchange, the Nasdaq OMX Group, are down 5 percent.

In addition, the trading performance of recent initial public offerings has been choppy. A number of companies going public in the last couple of weeks have priced their offerings conservatively in anticipation of an uncertain market.

Virtu turned heads on Wall Street when it first filed for an initial public offering. The company said that it had lost money on just one day in nearly five years, a statistic that was seized on by critics of the industry.

Its decision to delay its offering was reported earlier by The Wall Street Journal online.

Gupta to Surrender to Prison on June 17

Rajat K. Gupta, the former Goldman Sachs director convicted of insider trading, has agreed to surrender to prison on June 17, according to a court filing on Thursday.

Mr. Gupta, who was a widely admired corporate executive before he was ensnared in the government’s investigation into insider trading on Wall Street, was found guilty in 2012 of leaking boardroom secrets to the former hedge fund manager Raj Rajaratnam. He was sentenced to two years in prison.

Last month, a federal appeals court rejected Mr. Gupta’s bid for a new trial, dismissing claims by his lawyers that the judge who presided over the case had committed errors.

Mr. Gupta has now agreed to report to prison no later than 2 p.m. on that Tuesday in June, according to the order, which was signed by Judge Jed S. Rakoff and filed in Federal District Court in Manhattan.

It is not yet clear where Mr. Gupta will serve his sentence. Judge Rakoff agreed to a request from Mr. Gupta’s lawyers that he be assigned to a medium-security prison in Otisville, N.Y., but the final decision is up to the Federal Bureau of Prisons.

Mr. Rajaratnam is serving an 11-year sentence at a federal prison in Ayer, Mass.

Weibo and Sabre Rise in Market Debut, After Shrinking I.P.O.s

The Weibo Corporation and the Sabre Corporation may have scaled back ambitions for their initial public offerings, but the cautious approach helped them.

Shares in both Weibo, one of China’s largest microblogging services, and Sabre, the big travel technology services provider, rose in their first day of trading on Thursday. Weibo’s stock was up more than 27 percent in late afternoon trading while Sabre’s was up 4 percent.

But the jumps in stock price came after both priced their offerings fairly low, as well as reduced the number of shares sold in their I.P.O.s. Weibo set its offering at $17 a share, the low end of its expected range, while Sabre priced its stock sale at $16 a share, $2 below expectations.

Both companies made their trading debuts during one of the roughest times for new stock sales in weeks, as shareholders have shown ambivalence about riskier investments. Until earlier this month, I.P.O.s had been on a tear, with many offerings pricing above expectations and then trading even better once they made their official market debut.

As investors began to fall out of love with fast-growing sectors like Internet and biotechnology, however, many prospective I.P.O.s began to falter as well, sending indexes like the Nasdaq in free fall on some days. An index of shares in newly public companies created by Renaissance Capital is down more than 1 percent so far this year.

Thomas Klein, Sabre’s chief executive, said in an interview that he wasn’t surprised about the change in investor sentiment since his company first filed a prospectus in January. Still, he added that the travel services provider viewed its listing as the first step in a long-term journey toward becoming a public company after seven years of ownership by private equity firms.

“We were pleased with the decision to change the size a little bit,” he said.

Some debutantes have performed well out of the gate. The food delivery company GrubHub priced its offering above an already heightened range and then shot up 31 percent in its first day of trading, for example. As of Thursday afternoon, it’s still up 38 percent over its offering price.

Others had to take a lower price in their I.P.O., as well as scale back the number of shares sold, to ensure that the first day of trading went smoothly. Two days ago, the boutique investment bank Moelis & Company priced its offering $1 below its range and trimmed the size of its stock sale; it was rewarded with a 4.6 percent pop in its debut on Wednesday. (It was still trading above its offer price as of Thursday afternoon.)

“We thought that’s probably where the world had moved,” Kenneth D. Moelis, the bank’s founder, told DealBook at the time.

Morgan Stanley Gets Most Relief From First-Quarter Earnings

Few banks have reported much to crow about in their first-quarter earnings. But Morgan Stanley can claim relief, at least, from the $1.45 billion in net income it reported on Thursday.

Its chief executive, James P. Gorman, presided over a far better start to the year than in 2013, including bucking the Wall Street trend in fixed-income trading. More important, Mr. Gorman looks closer to hitting targets than rivals like Bank of America and Citigroup.

Even so, Morgan Stanley’s showing was not as good as Goldman Sachs’s managed results. Goldman, run by Lloyd C. Blankfein, earned an annualized return on equity of 10.9 percent in the quarter, compared with 8.9 percent at Mr. Gorman’s shop, although Goldman relied on some $500 million more in investment gains than analysts at Citigroup had expected.

Morgan Stanley’s return on equity is therefore still running shy of the 10 percent seen as a decent proxy for banks’ cost of capital. But momentum seems to be building toward that goal.

In one illustration of this, Morgan Stanley’s fixed-income, currency and commodities unit turned in a 35 percent increase in its top line from the first quarter last year. Bank of America eked out a 2 percent increase, while Citi, JPMorgan and Goldman were down 11 percent to 21 percent.

The equities trading unit also had a good quarter, with its $1.7 billion of revenue just beating Goldman’s showing for the second time in three periods.

The real juice for Mr. Gorman, though, comes from the bank’s two less capital-intensive businesses. Wealth management kept a recent trend going with a 19 percent pretax margin, just less than longer-term targets. Investment management, meanwhile, blasted out a 36 percent pretax margin, putting Morgan Stanley in the same league as market leaders like BlackRock.

Mr. Gorman was excited enough to tell investors that the earnings power of these two businesses alone could justify doubling or even tripling the bank’s dividend, if the Federal Reserve were to allow it. That won’t happen any time soon.

But with better core earnings and much less of the legal and regulatory trouble that has hurt Bank of America and Citi, Mr. Gorman can, for the first time in a while, breathe a lot more easily.

Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

BlackRock Profit Rises as It Attracts More Money From Investors

The giant asset management firm BlackRock said its profit rose 20 percent in the first quarter, as it attracted more money to its mutual fund products.

BlackRock said on Thursday that it earned $756 million, or $4.40 a share, in the quarter, compared with $632 million, or $3.62 a share, in the period a year earlier. On an adjusted basis, its first-quarter profit was $4.43 a share, handily beating the estimate of $4.11 a share by analysts surveyed by Thomson Reuters.

The firm benefited from an increase in assets under management, bolstering its fee revenue. BlackRock said it managed $4.4 trillion by the end of the quarter, 12 percent higher than a year earlier and 2 percent more than in the fourth quarter of last year.

Retail investors committed more money to a range of BlackRock products during the quarter, betting on the firm’s investing abilities during a choppy period for equity and debt markets.

These smaller investors committed the most to BlackRock’s fixed-income funds, which experienced $6 billion in retail inflows, but they also committed $2.2 billion to the firm’s stock funds. Over all, retail investors entrusted $14 billion with BlackRock products during the quarter.

Institutional investors, however, withdrew $8 billion from BlackRock’s actively managed stock funds and $7 billion from its actively managed fixed-income funds. These investors favored index products, committing $8.7 billion to BlackRock’s stock index funds and nearly $10 billion to its fixed-income index funds.

BlackRock said its total long-term net inflows in the quarter were $26.7 billion.

“The strength and stability of our diversified platform again drove our results,” Laurence D. Fink, the chairman and chief executive, said in a statement.

BlackRock said that its total revenue in the quarter rose 9 percent from the year earlier to $2.7 billion, bolstered by its administration fees, investment advisory business and securities lending activities.

The firm announced a series of executive shifts earlier this month, aimed at grooming potential successors to Mr. Fink.

Officials Zero In on Allegations of Kickbacks in Luxury Car Sales

New York authorities appear to be getting closer to filing charges in connection with an investigation into allegations of kickbacks being paid to salesman at high-end car dealerships in the New York area. The investigation is part of a broad national crackdown on businesses seeking to turn a quick profit by exporting luxury cars from the United States to China.

Two weeks ago, in an indication that the investigation has picked up steam, Prestige Motors, one of the largest luxury car dealers in the region, fired or suspended a half-dozen executives after an internal inquiry by the law firm Drinker Biddle & Reath, said two people briefed on the matter but not authorized to speak publicly. The action was a response to the investigation being led by New York State’s attorney general, Eric T. Schneiderman, whose office has begun reaching out to some of those Prestige employees.

Mr. Schneiderman’s office is looking at several dealerships in New York and New Jersey that sell Mercedes, BMWs, Range Rovers and Porsches to determine whether sale executives there sold new cars to businesses engaged in exporting luxury vehicles to China. New cars can be resold in China for as much as three times the sticker price because of the high demand in cities like Shanghai and Beijing for luxury vehicles, said the people briefed on the matter.

The investigation centers around allegations that some sales executives at luxury auto dealerships took bribes or other payments from these exporting businesses, which typically pay local residents to serve as “straw buyers” who claim to be buying the cars for themselves. The straw buyers come to the dealerships with wallets full of cash to purchase cars that typically retail for $55,000 to $75,000 and are supposed to be sold only for domestic use.

It is not clear what laws the export businesses are violating. In some cases, the authorities have claimed that car export firms violated United States law by using deception to purchase cars and also sometimes submitting falsified shipping documents to conceal the fact the cars were newly purchased. Lawyers for the firms counter that there was nothing inherently illegal in buying car in the United States and shipping it overseas and that government lawyers were effectively getting involved in a commercial dispute between auto manufacturers and export firms.

Mr. Schneiderman’s office, along with agents from the Secret Service and the Department of Homeland Security, began investigating the activities at New York-area car dealerships last fall. Several months earlier, the Secret Service began a broad national crackdown in a half-dozen states on automotive firms that specialize in exporting newly purchased luxury cars to China and other overseas countries.

Representatives from the two federal agencies recently met with lawyers in Mr. Schneiderman’s office to discuss the investigation and are still deciding whether to pursue the matter criminally or civilly, said another person briefed on the matter but not authorized to discuss it publicly.

The inquiry by Mr. Schneiderman’s office, if it results in criminal charges, would be a significant escalation in the government crackdown and potentially put a further chill in the profit potential for this type of business.

To date, most of the actions have involved civil forfeiture brought by federal prosecutors in Florida, New York, New Jersey, Ohio and South Carolina. In those states, federal authorities have seized cars and frozen the bank accounts of the export firms in an attempt to squeeze this gray market export business, which is believed responsible for sending as many as 35,000 new luxury cars a year from the United States to China, Russia and other countries.

Theresa Boylan, a spokeswoman for Prestige Management Services, which operates seven Prestige Motor dealerships in northern New Jersey, declined to confirm the firings and dismissals or Mr. Schneiderman’s investigation. But Ms. Boylan said the company, which also has dealerships in Colorado and Connecticut, “continues to look closely at its business operations and will take appropriate action in any situation involving improper export sales.”

Earlier this month, the export firms scored a legal victory when a federal judge in Ohio ordered the federal government to return money and cars it seized in September from a Los Angeles-based automotive export business involved in reselling newly purchased luxury vehicles. Judge Sandra S. Beckwith, of the Federal District Court for the Southern District of Ohio, said that prosecutors had failed to produce sufficient evidence of wrongdoing by the car export company to justify the asset freeze.

But government authorities suspect that some of the money being used by the export companies is coming from foreign buyers looking to launder money from the proceeds of illegal activities. The authorities also contend that the car export business subjects dealerships in the United States to potential penalties from foreign auto manufacturers that seek to impose limits on where their cars are sold around the globe and the prices they are sold for.

Reports of auto salesman taking cash payments to look the other way at the activities are not limited to dealerships in the New York area. A person who works for an export firm but declined to be identified because it might expose his firm to potential liability said dealers in other states asked him for cash payments of $5,000 to overlook the fact a car was being sold to an exporter.

Others in the export industry said the government’s yearlong crackdown was starting to have an impact on overseas demand and had caused some wealthy buyers in China to back away from transactions.

Goldman Says It Has No Plans to Exit Dark Pool Business

Goldman Sachs is not quite ready to get out of the pool.

Harvey Schwartz, the chief financial officer of Goldman Sachs, told analysts during a conference call to discuss the bank’s first-quarter earnings on Thursday that he had “no strategic plans” to close the bank’s dark pool trading business known as Sigma X.

Dark pools are stock trading systems that allow buyers and sellers to remain anonymous outside of established exchanges like the New York Stock Exchange. The practice began drawing increased scrutiny from regulators as concerns grew that such practices could obscure the true value of stocks, and whether regulation has been able to keep up with new technology and other market conditions.

The recent book “Flash Boys” by Michael Lewis drew even more attention to dark pools by questioning whether high-speed traders were gaining unfair market advantages.

Asked about what kinds of concerns he had heard from clients regarding Sigma X, Mr. Schwartz said he was unaware of any explicit concerns.

At one point before the financial crisis hit, Goldman operated the largest broker-run dark pool, averaging 140 million shares a day. But revenue from the unit has declined amid increased competition from rival firms.

About 36.8 percent of all stock trading now takes place outside of public exchanges, according to Rosenblatt Securities.

That flies in the face of regulators’ attempts to bring more transparency to the financial industry in the wake of the financial crisis. Like public exchanges, dark pools allow investors to connect with buyers and sellers, but they are subject to less strict regulatory requirements.

“They have to weigh the benefits of generating revenue and earnings from their dark pool business versus their traditional customer business,” said Gerard Cassidy, the head of United States bank strategy at RBC Capital Markets.

James Murdoch Joins Board of Advertising Start-Up

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U.S. Activist Investor Turns Eyes Toward Europe

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Morgan Stanley’s Earnings Increase 18%

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Why Sugarcoat? British Conglomerate’s Chief Labels 2013 a Disaster

LONDON - Some chief executives like to sugarcoat bad results, but the interim C.E.O. of the Co-operative Group felt no such need when reporting the firm’s results on Thursday.

Richard Pennycook, the interim chief, called 2013 “a disastrous year for the Co-operative Group, the worst in our 150-year history.”

“Today’s results demonstrate that,” he said in a company statement, “but they also highlight fundamental failings in management and governance at the group over many years.”

Among the failings at the conglomerate, which manages a bank, supermarkets, pharmacies and funeral homes, were a bank that had to be rescued by hedge funds; a former chairman and Methodist minister who has been arrested on drug charges; and the sudden exits of two executives brought in to salvage the group.

On Thursday, the Co-operative Group reported eye-popping losses of 2.3 billion pounds for 2013. The results were largely driven by a £1.44 billion operating loss at the Co-operative Bank, as well as the cost of the stake it retained after its restructuring. There firm also took a £226 million write-down on good will from the Somerfield grocery chain that it bought in 2009. Revenue fell 4.5 percent, to £10.5 billion.

The Co-operative Group has careened from crisis to crisis since a £1.5 billion capital hole emerged at the banking unit last year. The bank’s debt was downgraded to junk status. A group of hedge funds led by Silver Point Capital and Aurelius Capital Management leapt into the fray, structuring a rescue that reduced the group’s bank stake to 30 percent.

The bank has a unique philosophy. Many of its deposits come from charities and community groups, and it will not lend to companies that do not meet its ethics policy. Yet, the bank has found itself in many embarrassing situations itself lately.

On Wednesday, Paul Flowers, formerly a chairman of the Co-operative Bank, was charged with possession of cocaine, methamphetamine and ketamine. He had been arrested in November after a newspaper photographed him purportedly buying cocaine. Mr. Flowers, a Methodist minister, has been nicknamed the “Crystal Methodist” by the British press and blamed for overseeing the financial implosion of the bank.

Before he was arrested, Mr. Flowers, who as chairman had no previous banking experience, testified in front the Treasury Select Committee in Parliament that the bank had £3 billion in assets, rather than the actual £47 billion it had at the time (he admitted his banking knowledge was “out of date”).

In April 2013, Euan Sutherland, an executive with retail experience, was brought in as chief executive to clean up the Co-operative Group. He walked out last month, calling the company, Britain’s biggest mutual firm, ungovernable.

Soon after, Paul Myners, a senior independent director and former Treasury official who was supposed to lead the banks reform efforts, also quit after his plans were opposed.

The Co-operative Bank has said it will raise £400 million in new capital, and the Co-operative Group needs to contribute roughly £120 million to avoid diluting its 30 percent stake. The group said it had not decided whether to contribute the funds, but added that it would need permission from its lenders. Debt at the company has risen from £600 million five years ago to £1.4 billion at the beginning of the year.

While group’s operating profit fell drastically - to £210 million in 2013 from £297 million in 2012 - earnings at the funeral business offered a rare bright spot, rising to £62 million from £60 million.

But Mr. Pennycook did not pull punches concerning the implications of the group’s losses, either.

“These results,” he said, “should serve as a wake-up call to anyone who doubts just how serious the challenges we face are.”

A Big Day for Earnings

Goldman Sachs reported a drop in first-quarter profit on Thursday, to $2.03 billion, reflecting declines in its fixed-income unit and overall revenue, Rachel Abrams writes in DealBook. The profit, which translated to $4.02 a share, compared with a profit of $2.2 billion, or $4.29 a share, in the period a year earlier. Wall Street analysts had been expecting $3.44 a share in the first quarter.

The firm generated $9.33 billion in net revenue in the quarter ended March 31, down from $10.09 billion in the period a year earlier. Analysts had been expecting net revenue of $8.7 billion.

Morgan Stanley, however, had a surprisingly strong performance in its fixed-income division, which trades bonds, derivatives and commodities. That helped lift the firm’s first-quarter profit 18 percent, Peter Eavis writes in DealBook.

On an adjusted basis, the bank said net income from continuing operations increased to $1.39 billion from $1.18 billion in the first quarter of 2013, while adjusted revenue rose to $8.8 billion from $8.48 billion. The first-quarter earnings exceeded the $1.22 billion that analysts expected Morgan Stanley to make, while revenue was above the $8.57 billion they were forecasting.

BLACKSTONE PROFIT ROSE 30%  |  The Blackstone Group generated a higher profit in the first quarter as it reaped gains from selling its holdings, William Alden writes in DealBook. Blackstone, the biggest of the publicly traded private equity firms, said on Thursday that its economic net income â€" a measure of profit that includes unrealized gains from investments â€" rose 30 percent, to $814 million, in the first three months of the year. The earnings amounted to 70 cents a share, beating the estimate of 55 cents by analysts surveyed by Thomson Reuters.

WEIBO TO TRADE  |  Weibo, the microblogging service sometimes called the Twitter of China, will begin trading publicly on Thursday, in the latest test of investor appetite for technology stocks. Weibo priced its initial public offering at $17 an American depositary share on Wednesday, at the bottom of its expected range, Michael J. de la Merced writes in DealBook. At that level, Weibo will have raised $285 million, and would be valued at $3.6 billion. Twitter ended trading on Wednesday worth $26 billion.

Weibo, the biggest of China’s microblogging services, is the latest Chinese company to seek a listing in an American market. And though it generated investor interest for some time, a number of factors have since tempered enthusiasm. For one, Weibo’s I.P.O. prospectus revealed that the company’s growth was not quite as impressive as analysts and investors had expected. It is also trying to come to market at a time when both I.P.O.’s and technology stocks have faced growing investor wariness.

ON THE AGENDA  |  Weekly jobless claims are out at 8:30 a.m. The Bloomberg consumer comfort index is released at 9:45 a.m. James P. Gorman, the chairman and chief executive of Morgan Stanley, is on CNBC at 10:30 a.m. This is the last DealBook newsletter of the week â€" markets are closed tomorrow in observance of Good Friday.

JAMES MURDOCH JOINS START-UP BOARD  |  James Murdoch, the co-chief operating officer of 21st Century Fox and Rupert Murdoch’s son, has joined the board of True[X] Media, an advertising company based in New York, David Gelles writes in DealBook. Also joining the True[X] board are Jonathan Miller, the former chief executive of AOL, and Mich Mathews, the former chief marketing officer of Microsoft.

The addition of Mr. Murdoch, Mr. Miller and Ms. Mathews provides True[X] with several influential media executives to guide the company as it expands. True[X] has developed an online advertising technology that allows web publishers to replace small display and text ads with interactive ad units aimed at giving brands a viewer’s full attention.

HEDGE FUND TITANS BUY THE MILWAUKEE BUCKS  |  The N.B.A. announced on Wednesday that two hedge fund leaders â€" Marc Lasry, the chief executive and chairman of the Avenue Capital Group and Wesley Edens, the co-chairman of the Fortress Investment Group â€" have agreed to buy the Milwaukee Bucks for about $550 million, William Alden writes in DealBook. They now face the challenge of revitalizing a floundering team that currently holds the league’s worst record.

Mr. Lasry and Mr. Edens join a long list of wealthy financiers with personal investments in sports. Among others, Joshua Harris, a co-founder of the private equity giant Apollo Global Management, led a group to buy the Philadelphia 76ers in 2011, and the billionaire Steven A. Cohen owns a small stake in the Mets. Mr. Lasry and Mr. Edens are buying the Bucks from Herb Kohl, who retired last year as a United States senator from Wisconsin after four terms.

 

Mergers & Acquisitions »

Post Holdings Reaches $2.5 Billion Deal for Michael Foods  |  The deal allows Post, known for brands like Raisin Bran and Honey Bunches of Oats, to expand into egg whites and potatoes. DealBook »

The Future of Facebook May Not Say ‘Facebook’  |  Facebook’s strategy includes unbundling its mammoth social network into discrete and nimble components, which helps explain the company’s increasing appetite for acquisitions, Farhad Manjoo writes in the State of the Art column. NEW YORK TIMES

Can Facebook Innovate? A Conversation With Zuckerberg  |  In an interview on the Bits blog, Mark Zuckerberg, the co-founder and chief executive of Facebook, chats with Farhad Manjoo about buying WhatsApp, anonymous communication and his age. NEW YORK TIMES BITS

Earnings and Sales From Google Disappoint  |  Google’s revenue for the first quarter rose 19 percent, to $15.42 billion, about $100 million short of expectations, and earnings per share were $5.04, compared with $4.97 in 2013, slightly weaker than forecast, The New York Times writes. The disappointing results were driven in part by Google’s rapid acquisition of companies in the quarter, including Nest Labs for $3.2 billion, which entailed specialist fees and other costs. NEW YORK TIMES

INVESTMENT BANKING »

BlackRock’s Profit Climbed in First Quarter  |  BlackRock, the world’s biggest asset manager, said on Thursday that its first-quarter profit rose sharply, driven by its retail business and positive flows across asset classes, Reuters reports. BlackRock reported net income of $756 million, or $4.40 a share, up from $632 million, or $3.62 a share, in the period a year earlier. REUTERS

Bank of America, Weighed Down by Legal Costs, Posts Loss  |  Bank of America recorded a $276 million loss in the first quarter, a sign it is still paying for its mortgage problems nearly six years after the financial crisis. DEALBOOK

Bank of America Not Alone in Reporting Anemic Results  |  Bank of America’s $276 million loss provides some valuable perspective on the difficulties in running a big bank these days, Antony Currie of Reuters Breakingviews writes. DealBook »

PRIVATE EQUITY »

Bain Capital Raises $7.3 Billion for Buyout Fund  |  The fund, which will focus on investments in North America, attracted $6.5 billion from outside investors, exceeding its target of $6 billion, a person briefed on the matter said. DealBook »

Warburg Pincus Nears Deal for Electronic Funds Source  |  The private equity firm Warburg Pincus is in advanced talks to buy Electronic Funds Source, a transportation services payments company based in Nashville, in a deal that could value the company at more than $1 billion, Reuters writes, citing unidentified people familiar with the situation. REUTERS

Is Private Equity Becoming Staid?  |  “Having shareholders is not the only thing that has changed for the firms that pioneered private equity. They have become bigger, accumulating assets under management at a furious clip,” the Economist writes. “They are also becoming duller.” ECONOMIST

New Jersey Investment Chief’s Ties to Carlyle May Raise Questions on Pension Deal  |  The website Pando calls into question the New Jersey Investment Council’s decision to give $300 million of state pension money to the private equity firm Carlyle Group, saying that Robert Grady, the council’s chairman and one of the closest advisers of Gov. Chris Christie of New Jersey, is a longtime executive at the firm who still receives income from its investments. PANDO

HEDGE FUNDS »

Cohen Gets to Trade for 90 Days Before Paying SAC Penalty  |  Overlooked in the judge’s approval of the guilty plea to insider trading charges entered by Steven A. Cohen’s hedge fund, SAC Capital Advisors, is that SAC was given 90 days to pay most of a $1.2 billion penalty. DealBook »

U.S. Activist Investor Turns Eyes Toward Europe  |  The activist investor SpringOwl plans to announce on Thursday that it is waging a proxy battle to bring change to Bwin.Party, the British online gambling company. DealBook »

A Settlement on Soured Mortgages May Raise Questions on What Is Enough  |  Some investors have questioned whether the big banks have paid enough to cover the mortgage abuses they committed before the financial crisis. But a group of investors is applauding a $950 million deal announced on Wednesday that finally gave them a big payout. DealBook »

Hedge Funds Take a Hit  |  Hedge funds have had their worst start to the year since the beginning of the financial crisis, The Financial Times writes. FINANCIAL TIMES

I.P.O./OFFERINGS »

Moelis & Co. Rises After Smaller-Than-Expected I.P.O.  |  Shares in Moelis & Company closed about 4.6 percent above their initial public offering price, after the firm cut both the price of its I.P.O. and the amount of shares it sold amid the volatile stock market. DealBook »

French Caterer Elior Considering an I.P.O. This Summer  |  Elior, one of Europe’s largest catering companies, is said to be considering raising up to 750 million euros, or slightly more than $1 billion, in an initial public offering. DealBook »

Sabre Prices I.P.O Below Range  |  Sabre, which helps airlines process reservations and owns the website Travelocity, priced its initial public offering at $16 a share, below the company’s expected range of $18 to $20 per share, Reuters writes, citing an unidentified person familiar with the situation. Shares of the company are expected to start trading on Thursday. REUTERS

Candy Crush to Expand to China  |  A deal between King Digital Entertainment and the Internet giant Tencent will bring one of the most popular game franchises to China, the Bits blog writes. The push into China follows the lackluster performance of King’s stock since the company’s initial public offering last month, which valued King at more than $7 billion. NEW YORK TIMES BITS

Germany’s Axel Springer Said to Be Considering Digital Unit I.P.O.  |  Axel Springer, the biggest newspaper publisher in Europe, is said to be working with JPMorgan Chase and Citigroup on an initial public offering of its digital-classifieds business, Bloomberg News write, citing unidentified people familiar with the situation. BLOOMBERG NEWS

VENTURE CAPITAL »

Is Bitcoin Like High-Frequency Trading?  |  “Bitcoins have something in common with high-frequency trading: Both are seen as either a huge waste of resources or a useful new technology that will lower costs in the financial industry for the benefit of consumers,” Matthew C. Klein writes in Bloomberg View. BLOOMBERG VIEW

BlackBerry’s Troubles Drive Start-Up Boom in Canada  |  More than 450 start-ups, many of which were started by former BlackBerry employees, have opened for business in a community that is thought of as Canada’s Silicon Valley, Reuters writes. REUTERS

Moleskine Tries to Win Over Tech Crowd  |  Moleskine, once known only for notebooks, has begun to position itself at the forefront of the “analog-digital continuum,” Adrienne Raphel writes in The New Yorker. Moleskine went public in Italy in April 2013. NEW YORKER

LEGAL/REGULATORY »

Pensioners in Detroit Rejoice, Though Deal Is Not Yet Done  |  A day after Detroit scaled back the large pension benefit cuts it had proposed, the bankrupt city fended off charges that it had caved in to retirees in ways that could come back to haunt it, The New York Times writes. NEW YORK TIMES

When ‘Liking’ a Brand Online Voids the Right to Sue  |  A new General Mills policy prevents customers from taking legal action against the company if they download coupons, enter a contest or connect with it in other ways, The New York Times reports. NEW YORK TIMES

In Disarray, Bitcoin Exchange Mt. Gox Signals a Move Toward Liquidation  |  In a statement posted on its website, the Tokyo-based Mt. Gox said a local court had dismissed its request that it be allowed to try to rehabilitate its business. DealBook »

Yellen Says Job Weakness Forestalls Raising Rates  |  In a speech in New York, Janet L. Yellen, the Federal Reserve chairwoman, said the labor market still needed a lift from monetary policy, despite an improving economy, The New York Times reports. NEW YORK TIMES

Samsung Saw Death of Apple’s Jobs as a Time to Attack  |  According to an email exchange presented in court, Samsung executives saw the death of Steven P. Jobs in 2011 as an opportunity to attack the iPhone, the Bits blog reports. NEW YORK TIMES BITS

High-Speed Traders Said to Be Subpoenaed by New York Attorney General  |  Eric T. Schneiderman, New York State’s attorney general, is said to have sent subpoenas to six high-speed trading companies seeking information about their trading strategies as well as special arrangements they have with exchanges and so-called dark pools, Bloomberg News writes, citing an unidentified person familiar with the situation. BLOOMBERG NEWS

Blackstone Profit Rose 30% in First Quarter

The Blackstone Group generated a higher profit in the first quarter as it reaped gains from selling its holdings.

Blackstone, the biggest of the publicly traded private equity firms, said on Thursday that its economic net income â€" a measure of profit that includes unrealized gains from investments â€" rose 30 percent to $814 million in the first three months of the year. The earnings amounted to 70 cents a share, beating the estimate of 55 cents by analysts surveyed by Thomson Reuters.

Private equity firms have been taking advantage of buoyant stock markets to sell their investments and collect performance fees. Blackstone, the first of the big private equity firms to report first-quarter results, said its performance fees were $779 million in the quarter, an increase of 29 percent from a year earlier.

The firm’s distributable earnings, a metric that reflects the cash it generates and can give to shareholders, rose 24 percent to $485 million.

Still, Blackstone said its investment income, which includes unrealized gains or losses, fell 14 percent in the quarter to $116 million. Its private equity and real estate segments, traditionally strong performers, both reported lower investment income.

But performance fees helped make up the difference. In private equity, Blackstone said its economic income more than tripled to $319 million.

Investors entrusted more money to Blackstone, helping push its assets under management to $272 billion, a 25 percent increase from the previous year’s quarter.

Bain Capital Raises $7.3 Billion for Buyout Fund

Bain Capital, the big private equity firm based in Boston, has finished raising its latest flagship buyout fund with $7.3 billion in capital, a person briefed on the matter said.

The fund, which will focus on investments in North America, attracted $6.5 billion from outside investors, exceeding its target of $6 billion, said the person, who was not authorized to discuss the matter publicly. Employees of Bain committed about $800 million.

It is the first North American buyout fund that Bain has raised since the financial crisis, underscoring investors’ confidence in the firm’s ability to continue generating strong returns at a time when stock prices are near record highs.

Compared with funds raised recently by some other private equity giants, Bain’s new fund is on the smaller side. Apollo Global Management, for example, closed an $18.4 billion fund in January.

But the size reflects Bain’s willingness to participate in smaller deals, a trend at other buyout giants as well. Some investors in private equity funds also tend to favor smaller fund sizes, believing these have the best shot at generating good returns.

Like much of the private equity industry, Bain is coming off a strong year. With stock markets soaring, Bain was a major seller of its assets and returned more than $10 billion to investors last year, the person briefed on the matter said. The firm invested $2.5 billion in new deals.

Bain has three main categories of private equity funds: European, Asian and North American. But those geographies are more guidelines than rules. The new North American fund, for example, bought a Brazilian health and dental insurance company, Grupo NotreDame Intermédica, last month.

With the new money, Bain Capital’s total assets under management are about $75 billion, of which $35 billion is in private equity.

Profit and Revenue Drop at Goldman Sachs

Goldman Sachs on Thursday reported a drop in first-quarter profit, to $2.03 billion, reflecting declines in its fixed-income unit and overall revenues.

The profit, which translated into $4.02 a share, compared with a profit of $2.26 billion, or $4.29 a share, in the period a year earlier. Wall Street analysts had been expecting profit of $3.44 a share in the most recent quarter, according to data from Thomson Reuters.

Analysts had been expecting a soft quarter for Goldman compared with its performance a year earlier, but its results in the most recent quarter beat expectations.

“We are generally pleased with our performance for the quarter given the operating environment,” Lloyd C. Blankfein, Goldman’s chief executive, said in a statement announcing the results.

The firm generated $9.33 billion in net revenues in the quarter ended March 31, down from $10.09 billion in the period a year earlier. Analysts had been expecting net revenue of $8.7 billion.

Goldman’s investment banking unit generated net revenues of $1.78 billion, up from $1.57 billion last year.

Net revenues in Goldman’s fixed-income, currency and commodities division fell to $2.85 billion from $3.2 billion last year. The firm cited “significantly lower” revenues from interest rate products, currencies and mortgages.

While other Wall Street firms have backed away from their fixed-income businesses, Goldman has doubled down on its commitment to the unit.

On Wednesday, Bank of America reported a 15 percent drop in fixed-income trading compared with figures in the period a year earlier, a decline eclipsed by some of its peers.

Morgan Stanley, however, reported a surprising jump in revenue at its fixed-income, currency and commodities unit on Thursday, to $1.7 billion from $1.5 billion in the period a year earlier, excluding an adjustment related to the firm’s debt. The firm’s overall first-quarter profit rose 18 percent, to $1.39 billion.

Goldman and Morgan Stanley joined two other big banks that reported first-quarter earnings this week.

Bank of America reported a first-quarter loss of $276 million amid mounting legal costs relating to the financial crisis. On Monday, Citigroup surprised analysts by reporting higher-than-expected first-quarter profits, despite regulatory problems and other issues affecting the banking industry.