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Morgan Stanley posts loss on writedowns; stock off

Morgan Stanley reported a much wider-than-expected quarterly loss as the credit crisis generated more writedowns and slashed fees from investment banking and brokerage.

The New York-based bank said on Wednesday its loss from continuing operations for the fiscal fourth quarter ended November 30 was $2.20 billion, or $2.24 a share.

Analysts' average forecast was a loss of just 33 cents a share, according to Reuters Estimates.

Morgan Stanley shares fell 5.9% in premarket trade.

It was the bank's second quarterly loss in the last five quarters. A year earlier it posted a loss of $3.59 billion, or $3.61 a share.

“The numbers are not good,” said Sal Arnuk, co-manager of trading at Themis Trading in Chatam, New Jersey. “They're cutting back on many, many different business lines, so it calls into question what is the return on equity going to be down the road.”

Morgan Stanley said it was targeting an additional $2 billion in cost savings, although that figure includes the annualized effect of previously announced job cuts.

On Tuesday, rival Goldman Sachs sparked a rally in bank stocks and the broader market even as it reported a loss of $2.1 billion. Investors had braced for even worse results.

Morgan Stanley's decision in 2005 to emulate Goldman by taking on more risk, betting more of its capital and financing more leveraged buyouts, backfired last year when a subprime mortgage bet generated a $9.4 billion fourth-quarter loss and forced the bank to sell a $5 billion stake to China.

The bank's shares plummeted 74% this year, and the company was forced to raise $19 billion of fresh capital as investors lost confidence in Wall Street's highly leveraged broker-dealers. The shares rallied 18% Tuesday on the Goldman results and an interest rate cut by the Federal Reserve. (Reuters)