Downgrade sends Reuters crashing

Reuters shares crashed to a nine-year low yesterday as Morgan Stanley, the broker, downgraded the stock amid concern about a sharp decline in revenues in the second half of this year.

The news and financial information supplier may be cutting costs dramatically but the fear in the market is the company cannot downsize fast enough to keep pace with demand that is disappearing even faster. Reuters reports interim results on 23 July, which are expected to be hit by a £100m restructuring charge.

"Unfortunately they are doing this [restructuring] at a time when Reuters' key customer group [investment banking] has already suffered a 50 per cent fall in earnings," Morgan Stanley said, noting this has intensified competition with its main rival Bloomberg.

Investment banking on Wall Street, the City of London and Europe will continue to see headcount reduction through the remainder of this year, the broker said, "which could see an impact on Reuters recurring revenues out into 2004".

The lower the headcount, the fewer Reuters terminals these customers need – and it takes about six months to cancel a subscription.

In a gloomy assessment of Reuters' prospects, Morgan Stanley analysts said the second quarter of this year "will show material deterioration in revenues" compared with the first quarter "and the second half will be much worse".

Reuters shares closed down 16p to 317p on turnover of 10.55 million shares as Morgan Stanley cut its recommendation on the shares from "equal-weight" to "under-weight".