Morgan Stanley falls as losses continue

The bank reported fourth-quarter losses of $2.2 billion, cutting the bank's full-year earnings down to $1.8 billion. Writedowns on mortgage-related assets cost it $1.2 billion, worse than in previous quarters this year, but an improvement on the $9.7 billion of writedowns it reported in Q4 2007. The bank also suffered $1.7 billion mark-to-market losses related to the weakening general credit environment - the losses were "largely related to acquisition financing to non-investment grade companies", it said.

Chief executive John Mack blamed "unprecedented turmoil in the past few months" for the losses. While Mack and the bank's two co-presidents, Walid Chammah and James Gorman, will forgo their bonuses for this year, other members of the bank's senior management will continue to receive bonuses.

Rating agency Moody's cited the results - and the losses reported yesterday by Goldman Sachs - as evidence of "the increased vulnerabilities that the ongoing credit market crisis has exposed in the model of Morgan Stanley and other wholesale-funded investment, commercial, and universal banks". Downgrading Morgan Stanley from A1 to A2 with negative outlook, the agency commented it would have been rated Baa2 if not for its expectation of "potential systemic support".

"Morgan Stanley did not generate sufficient revenues in the quarter to more fully absorb writedowns, reflecting some weakness in its franchises," the agency said, adding, "the previous acute customer and investor confidence pressures on Morgan Stanley appear to have been alleviated in part due to the far-reaching support supplied by the regulators".

See also: $2.1 billion loss ends 2008 on sour note for Goldman Sachs