By VERNON CLEMENT JONES, Guardian Business Editor, vernon@nasguard.com

Morgan Stanley and its partners in the Barbary Beach project for Grand Bahama will likely delay that development beyond the six-month hiatus indicated last December, with a Freeport associate of the development pointing to the firm's low first-quarter profits as a contributing factor.

"The investment climate is generally very conservative at this point," said the Guardian Business source, a Bahamian close to the project.

The Morgan Stanley development at Barbary Beach, which is slated to involve a major hotel and casino, timeshares, condos, second homes and retail and commercial facilities, is officially in the planning stages and now seems likely to remain stuck there for the next year, given Morgan's $1-billion drop in earnings for the first quarter of this year.

That represents a whopping 42-percent drop from the $2.66 billion it raked in for the same period a year earlier.

Revenue also fell some 17 percent to $8.3 billion from $10 billion a year earlier.

While the lower results actually came in above some analyst expectations, they're a strong indication that the global credit crunch continues to claw back returns for major investment houses like Morgan and Bear Stearns.

Part in parcel with that new reality is the hesitance of those companies to invest in projects with any real degree of uncertainty.

That may largely be the case in Grand Bahama where a flagging tourism sector has derailed resort development with investors looking elsewhere in The Bahamas or internationally to park their Greenbacks. The new owner of the Royal Oasis property may be the most recent exception to that trend, although Harcourt Development has yet to announce when exactly work on its re-development project will start.

It was only last December that the deputy director-general for the Ministry of Tourism told Guardian Business the Morgan-led group had altered its earlier plan to steam ahead with planning for and construction of the Barbary project.

"They have delayed for six months some aspect of their development I have heard throught they partners (DEVCO)," said David Johnson just before Christmas. "We continue to look forward to that project bringing even more life to Grand Bahama."

The investment bank and its Port Authority partner had indicated early last year that they would proceed with development of a master plan for the Grand Bahama site. That now seems to have been placed on hold, although it is unclear if the delay will set back construction plans, which have also yet be to announced.

The change in schedule as well as the failure of the Baha Mar deal will invariably raise concerns about the outcome of the multi-million-dollar project and the immediate fate of others slated for development across the Family Islands. Those questions won't likely get answered until the U.S. economy begins to pick up.

Morgan Stanley continues to grapple with significant losses with the collapse of the subprime mortgage industry in the form of massive writedowns, an effort to stem the bleeding.

It — like its rivals — continues to show vulnerability to the ongoing credit crisis. Morgan reported write-downs of $2.3 billion — including $1.2 billion from mortgage-backed securities and $1.1 billion from bad loans.

They follow another $5.7 billion writedown of U.S. subprime, and other mortgage related exposures in November.

That less-than-desirable position has likely forced it and others to rein in on their own investment projects, unwilling to sink finances into developments with even modest levels of risk.

Still, Morgan has better managed its book in these tough times than many of its competitors, said Wall Street analysts Wednesday.

The suggestion hints at the real possibility of the bank proceeding with Barbary project. Also informing that decision may be the return of control of DEVCO, its partner in the deal, to the hands of the Port Authority board of directors. A court decision earlier this month effectively dismissed its receivers, who had little power to sign off on development initiatives.