Morgan Stanley Reports Sharp Drop in Quarterly Profit

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Morgan Stanley earns
Victor J. Blue/Bloomberg via Getty Images
By STEVE ROTHWELL

NEW YORK -- Morgan Stanley says its earnings fell in the fourth quarter as it was hit by legal costs related to mortgage-backed securities.

The New York investment bank earned $433 million, or 20 cents a share, in the final three months of 2013. That compared to $982 million, or 49 cents a share, a year earlier.

Excluding litigation costs and a tax benefit, the bank earned 50 cents a share, beating the 44 cents forecast by Wall Street analysts. The results also exclude accounting adjustments related to the value of the bank's debt.

Morgan Stanley (MS) reported legal expenses of $1.2 billion related to mortgage-backed securities lawsuits and investigations for the quarter.

U.S. banks are still dealing with the fallout of the financial crisis more than half a decade after it began.
JPMorgan (JPM) on Tuesday reported results that were impacted by legal expenses and Citigroup (C) said Thursday that it had $800 million in legal costs in the fourth quarter and that it expected those kinds of expenses to continue for the industry.

Morgan Stanley's revenue rose 9 percent to $8.2 billion from $7.5 billion in the fourth quarter, beating analysts' forecasts of $8.02 billion.

"Our fourth-quarter results demonstrated the consistency embedded in our business model, as revenues increased year-over-year in all three of our business segments," James Gorman, the bank's CEO, said in prepared remarks. "Importantly, we are continuing to address many of the legal issues from the financial crisis."

IPO Boost: Revenue at Morgan Stanley's Institutional Securities unit edged higher to $3.7 billion from $3.6 billion a year ago, boosted by a big increase in stock underwriting as the market for initial public offerings improved. Bond underwriting fees fell slightly as investment-grade bond sales declined.

In line with other big banks that reported earnings this week, Morgan Stanley said revenue from its bond trading business fell.

The Wealth Factor: Morgan Stanley's wealth management unit brought in more fees, and clients moved more assets to the bank. Morgan Stanley has been building out its wealth management business to reduce its reliance on trading and sales revenues.

Stock Reaction: Morgan Stanley's stock rose 40 cents, or 1.2 percent, to $32.80 in pre-market trading.



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