Gains related to principal investments held by certain consolidated real estate funds contributed to relative improvement in Morgan Stanley’s earnings for 4Q10 and the full year in 2010.

Results for 2010 included gains of $431 million in Merchant Banking related to principal investments held by certain consolidated real estate funds.

In 4Q10 there were gains of $109 million related to principal investments held by certain consolidated real estate funds.

On an unaudited basis, Morgan Stanley said in its financial supplement that its consolidated income for 4Q10 was $867 million, up from $460 million during the 4Q09. It said its consolidated income for the year was about $4.46 billion in 2010, up from approximately $1.28 billion for 2009.

For 2010, on a diluted earnings per share basis, the net income applicable to Morgan Stanley including discontinued operations was $2.63. It took a net loss of $0.77 in this category in 2009. For the fourth quarter of 2010, net income on an earnings per diluted share basis—including discontinued operations — was $0.41. Net income on an earnings per diluted share basis was $0.29 in 4Q09.

Meanwhile, yesterday Wells Fargo reported its earning results, showing that it hit a residential production home run in 4Q10

Wells Fargo in 4Q10 solidified its position as the nation's largest funder of home mortgages, originating $128 billion of loans during the period, its best showing since the second quarter of 2009.

The nation's second largest originator of home mortgages, Bank of America, will release its results later in the week with its fundings expected to trail Wells by at least $30 billion.

Wells' mortgage banking division, which continues to originate through all three production channels, posted $2.8 billion in noninterest income during the period, a 10% jump from 3Q10.

At yearend, Wells serviced roughly $1.8 trillion in mortgages, but it reduced the value of its MSRs by $143 million during the quarter, anticipating higher foreclosure costs in the months ahead.
On Wednesday the megabank joined the crowd of lenders declaring that loan repurchase demands have peaked and appear to be headed downward on a permanent path.

During its earnings conference call, company chief financial officer Howard Atkins said the bank has $2.1 billion of outstanding buyback demands, noting that its current reserve of $1.3 billion in this area is "well enough" to handle the problem. (Buyback demands peaked in 2Q10 at $2.8 billion.)

On Tuesday executives from JPMorgan Chase predicted that its buyback related problems would end this year and other banks are expected to report the same in the weeks ahead. A majority of these repurchase demands come from Fannie Mae and Freddie Mac, but also private label secondary market investors.

All of Wells Fargo earned a record $3.4 billion during the fourth quarter, a 21% gain year over year.

Other earnings reports showed less profitability, a case in point: PNC Financial Services Group's mortgage unit. 

Lower loan sales revenues and fewer originations helped to drive down the earnings posted by PNC's residential mortgage banking segment from $435 million in 2009 to $275 million for 2010.

For 4Q10, earnings in this segment fell from $25 million in 2009 to just $3 million in 2010.
Also affecting earnings, said PNC, was higher foreclosure-related expenses and lower net hedging gains.

Refinancings drove an increase in fourth quarter 2010 volume to $3.5 billion from $2.7 billion in the third quarter 2010 and $2.3 billion in 4Q9.

However, for all of 2010, PNC did $10.5 billion, down from $19.1 billion the previous year.
PNC saw a decline in its mortgage servicing portfolio, from $145 billion on Dec. 31, 2009 to $131 billion on Sept. 30, 2010 and $125 billion as of Dec. 31, 2010, as loan payoffs continue to outpace new production.

But the fair value of the servicing rights portfolio increased from $0.8 billion at the end of the third quarter to $1.0 billion at the end of the fourth, as interest rates rose during that period.

An increase in the value of commercial MSRs led to an increase in linked-quarter earnings at PNC's corporate and institutional banking segment. In the third quarter this segment earned $427 million, but in the fourth, it earned $540 million.

The commercial servicing portfolio is at $266 billion at year-end 2010, up from $263 billion at the end of 3Q10 but down from $287 billion at Dec. 31, 2009.

The year-over-year decrease was from run off exceeding new production because of limited market opportunities to purchase commercial MSR portfolios.

Another loss was reflected in MGIC Investor Corp., although it is expected tol continue to outperform. Investors overreacted to the 4Q10 loss posted by MGIC, a report from FBR Capital Markets implied.

Analyst Steve Stelmach not only maintained his outperform rating on the company's stock, but continues to predict MGIC will be profitable in the first two quarters of this year and return to full year profitability in 2012. He did drop his earnings per share forecast from $0.08 to $0.02 for the first quarter and $0.19 to $0.07 for the second.

"With the hype regarding the fourth quarter having now passed, we can approach the stock with a more sober perspective and evaluate the opportunity that it presents," Stelmach said in a report.

While investors felt it was a disappointing fourth quarter at MGIC, he argued much of the problem was related to taxes and that new notices of default were lower during what is typically the weakest quarter of the year for a mortgage insurer, cure rates were flat quarter over quarter and new risk written was up 19%.

The latter shows the positive impact the Federal Housing Administration pricing changes are having, not only for MGIC but other private MIs as well.

Stelmach said he remains positive but realistic on the company. Sustained profitability will return, but not until 2012. He has made an initial prediction of $1.75 per share for that year.

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