Morgan Stanley Loss Worse Than Expected

Updated from 9:48 a.m. EDT

Morgan Stanley (MS Quote) reported a worse-than-expected first-quarter loss of 57 cents per share and cut its quarterly dividend 81% to preserve capital.

The net loss applicable to common shareholders of 57 cents a share compares to a profit of $1.26 a share a year ago. Analysts polled by Thomson Reuters had predicted a loss of 8 cents a share.

The company slashed its quarterly dividend to 5 cents a share, from 27 cents previously. The move allows the company to retain an additional $1 billion in common equity annually, it said.

As anticipated, an accounting oddity caused Morgan Stanley to take an earnings hit from a rise in the price of its bond obligations. The firm also said it was hurt by declines in the market for commercial real estate.

Morgan Stanley rival Goldman Sachs (GS Quote) beat expectations with a profit of $3.39 a share last week.

Both companies reported strong gains related to fixed income trading, as did several banks, including JPMorgan(JPM Quote), Bank of America (BAC Quote) and Citigroup (C Quote).

A large portion of the gain looks to come from banks acting as middlemen, capitalizing on increased trading activity and higher "spreads" -- the difference between what a buyer will pay and a seller will offer for a particular bond, according to Tim Sangston, fixed-income consultant at Greenwich Associates.

"It's kind of a double whammy, where volumes are up, and the quality of the volumes are improving from the dealers' point of view," Sangston says.

Morgan Stanley shares were down 2.6% to $24.02 in recent trading.