Morgan Stanley earnings fall sharply

U.S. investment bank Morgan Stanley on Wednesday said quarterly profit dropped 34 percent amid reduced trading revenue, falling well short of Wall Street’s already-lowered expectations after a summer of sluggish market activity.

New York-based Morgan Stanley also said it reached an agreement in principle with the New York Stock Exchange on its failure to comply with certain prospectus delivery rules, operational deficiencies and other matters. The firm, which paid $19 million in the NYSE settlement, said talks have not concluded and there is no assurance a resolution will be reached.

Net income dropped to $837 million, or 76 cents a share, in the fiscal third quarter ended Aug. 31, down from $1.27 billion, or $1.15 per share, in the year-earlier period.

Analysts on average had expected Morgan Stanley to earn 96 cents a share, with forecasts ranging between 88 cents and $1.05, according to Reuters Estimates.

Morgan Stanley attributed some of profit decline on changes to its stock-based compensation plan that reduced expenses last year. The changes resulted in an earnings boost of $350 million, or 32 cents a share, in the year-ago period.

Net quarterly revenue across the firm rose 3 percent to $5.4 billion from last year, though analysts on average had expected the firm to generate $5.8 billion.

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Morgan Stanley’s results are especially disappointing after its rival Goldman Sachs Group Inc. on Tuesday posted a surprisingly strong 30 percent increase in earnings.

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Morgan Stanley shares fell $2.78 to $49.60 in pre-market trading.

The investment banking business made gains during the quarter. Morgan Stanley so far this year ranked first in worldwide equity and equity-linked underwriting and first in global initial public offerings.

Also, Morgan Stanley’s Discover credit card business reported its lowest loan losses in three years. Earnings in that business rose 13 percent to $330 million from last year.