Morgan Stanley Earnings Drop, but Beat Expectations

Morgan Stanley Earnings Drop, but Beat Expectations

Morgan Stanley reported quarterly earnings and revenue that beat analysts' expectations on profit and revenue Thursday.

The company said it earned $0.28 a share excluding items, with net revenue of $7.6 billion. The number excludes the $2.3 billion negative impact from an accounting charge related to tightening from debt-related credit spreads, or DVA.

After the earnings announcement, the bank's shares initially slid but quickly rebounded and most recently were up nearly 1 percent before the opening bell. (Click here to get the latest quotes for Morgan Stanley.)

The company's third-quarter earnings excluding items were down sharply from $1.14 a share in the year-earlier period.

Net revenue excluding the accounting charge rose from $6.4 billion a year ago. Including the charge, the company saw a revenue loss of $2.3 billion.

Including that charge, Morgan Stanley lost $1 billion, or 55 cents per share, in the quarter.

U.S. accounting rulemakers are changing the rule that requires earnings to reflect changes in a bank's debt values. Analysts and investors tend to ignore income and losses from debt value adjustments because the adjustments swing wildly but have little impact on a bank's daily business.

Analysts had expected the company to report earnings excluding items of 24 cents a share on $6.36 billion in revenue, according to a consensus estimate from Thomson Reuters. (Read More: Earnings Look Better So Far, but Market May Not Care )

Revenue gains were broad-based, with the biggest moves in asset management, which helps institutional clients invest in private equity, real estate and other areas.

On an conference call with reporters, Morgan Stanley's CFO Ruth Porat said that the firm's trading business had been reinvigorated in the wake of the bank's bond rating being downgraded last summer.

Porat reiterated the concern among many Wall Street banks that the looming raft of tax hikes and spending cuts — referred to as "the fiscal cliff" — that could hit the U.S. economy next year might take a toll on Morgan Stanley. She said worries about the cliff were being felt in mergers and acquisitions activity, but not yet in trading.

Europe's debt crisis and recession was leading to "low levels of activity" on the Continent, Porat said. Still, she said the European Central Bank's emergency efforts to backstop distressed bond markets should be helpful.

The bank's capital under Basel III regulations were above 9 percent, rising from 8.5 percent in the prior quarter.

Bank earnings have been largely better than expected, with high-profile beats earlier from Citigroup and Goldman Sachs this week as well as JPMorgan Chase and Wells Fargo last week.

The biggest banking story of the week was the sudden an unexpected departure of Citi CEO Vikram Pandit, but bank stocks, including Citi's, have been performing well. (Read More: Pandit's Sudden Exit: What Really Happened at Citi? )

Compensation at Morgan Stanley rose in the quarter, from $3.6 billion a year ago to $3.9 billion.

"Our third quarter results show a balanced, strategically focused franchise that has attained stronger revenues and executed on key goals, " CEO James P. Gorman said in a statement.

The company saw net revenue gains from fixed income and commodities sales and trading as well as from investment banking operations.

Advisory revenues fell year-over-year from $413 million to $339 million due to the continued decrease in trading volume. Fixed income and commodities sales rebounded from $1.1 billion to $1.5 billion.

—Reuters contributed to this report.