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Morgan Stanley Posts Lower Profit

  • Morgan Stanley reports fourth-quarter earnings per share of 7 cents. Excluding debt valuation adjustment (DVA), earnings came in at 20 cents per share.
  • Revenue came in at $7.8 billion or $8.2 billion, excluding DVA.
  • Analysts expected EPS of 45 cents on revenues of $8 billion.
Updated from 8:03 a.m. with analyst commentary added to second and third paragraphs and updated share price in fifth paragraph.

NEW YORK (TheStreet) -- Morgan Stanley (MS) on Friday reported fourth quarter earnings of 7 cents per share, or 20 cents on an adjusted basis, though both figures were weighed down by legal costs.

Analysts had been expecting 45 cents per share, according to Bloomberg but Oppenheimer analyst Chris Kotowski said in a note shortly after earnings were released that core earnings were actually 48 cents.

"Various news services have gone with a wide variety of core numbers because there were not just "above the line" items but also below the line tax benefits. We'd put core earnings with a normal tax rate at ~$0.48," he wrote.

Net revenue of $7.8 billion for the fourth quarter compared with $7.0 billion a year ago and $7.93 billion in the third quarter. Full year revenue was $32.4 billion compared to $26.1 billion in 2012. Income from continuing operations was $3.1 billion, or $1.43 per diluted share, compared with income of $138 million, or 2 cents per diluted share in 2012.

Morgan Stanley shares were higher by 1.34% to $32.40 in pre-market trading.

Morgan Stanley's legal costs ate up 40 cents per share in profit, as the bank set aside an additional $1.2 billion in its legal reserves for "litigation and investigations related to residential mortgage-backed securities and the credit crisis," according to the earnings release.

Compensation also rose -- to $4.0 billion in the fourth quarter increased from $3.6 billion a year ago.

The securities underwriting and wealth management giant also claimed a tax benefit of $192 million or 10 cents per diluted share.

The legal hit was taken by the Institutional Securities business, which reported a pre-tax loss from continuing operations of $1.1 billion compared with pre-tax income of $78 million in the fourth quarter of last year. Advisory and equities results were essentially flat, with fixed income revenue falling as expected to $694 million compared with $811 million a year ago. 

Wealth Management reported pre-tax income from continuing operations of $709 million compared with $562 million in the fourth quarter of last year. Revenues for the quarter were $3.7 billion compared with $3.3 billion a year ago. Revenue in the investment management unit were also higher vs. the fourth quarter of 2012.

James Gorman, Chairman and Chief Executive Officer, said, "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. Importantly, we are continuing to address many of the legal issues from the financial crisis. We look forward to further progress on our strategic goals as we move into 2014 with strength and momentum."

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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