Morgan Stanley posts big loss

By Joseph A. Giannone

NEW YORK (Reuters) - Morgan Stanley reported a much wider-than-expected $2.2 billion quarterly loss on Wednesday on plummeting markets and poor trading moves, while banking and brokerage fees sank.

It was the bank's second loss in the last five quarters, and six times deeper than expected, driven by a laundry list of setbacks: $1.7 billion in writedowns of leveraged buyout loans, $800 million in writedowns of assets held in bank units and $1.8 billion in principal investment losses.

Even some of the positives were not great news for investors. Morgan Stanley recorded a $2.1 billion gain from buying back its own debt at distressed levels, and a $2 billion gain from the falling value of its own bonds.

Still, shares rose as much as 11.2 percent on hopes that the worst of the losses may be over. Before the rally, Morgan Stanley traded for about one-half of its book value, or $30.24 a share at the end of November.

"Maybe the message is these guys are going to survive, and if a company is going to survive, their stocks should at least be at book," said Sanford C. Bernstein analyst Brad Hintz.

But because of such large gains from one-time items like the bank's weakening debt, the results were of "poor quality" Hintz said, adding that the company's conference call left too many questions unanswered.

Early in the session, Morgan Stanley shares fell as the results showed how badly investment banks could get hurt by a market slump that became a rout in November.

Merger and underwriting activity came to a screeching halt, with break-ups outpacing deals. Morgan Stanley's bigger rival, Goldman Sachs Group Inc posted similar losses on Tuesday as questions arose about the future profitability of traditional investment banking businesses.

"Everyone knew this quarter was going to be awful," Fifth Third Asset Management portfolio manager Jon Fisher said. "There's just nothing going on in the business."

With business weaker for the year, Morgan Stanley cut salaries by 26 percent total, paying its employees $12.3 billion in compensation and benefits for 2008, compared with $16.6 billion a year ago.

Moody's Investors Service cut Morgan Stanley's senior debt rating by a notch to "A2," citing the results and the bank's exposure to credit markets.

The stock closed up 37 cents to $16.50 on the New York Stock Exchange, where they climbed as high as $17.93.

IRRATIONAL PRICING

New York-based Morgan Stanley said it lost $2.20 billion, or $2.24 a share, in the fiscal fourth quarter ended November 30. Analysts on average had forecast a loss of just 33 cents a share, according to Reuters Estimates.

From underwriting to trading, revenue fell off a cliff as stock and fixed-income markets went from bad to worse.