Morgan Stanley posts another profit

By Colin Barr, senior writer

NEW YORK (Fortune) -- Morgan Stanley posted its second straight quarterly profit Wednesday, a year after a loss that ranked as one of corporate America's biggest ever.

The nation's sixth-biggest bank earned $617 million for the quarter ended Dec. 31. That compares with a year-ago loss of $11 billion.

Morgan Stanley said that income from continuing operations came in at $413 million, or 14 cents a share. Analysts surveyed by Thomson Reuters were looking for a profit of 36 cents a share in the fourth quarter on this basis.

The latest quarter was hurt by a weak performance in fixed income sales and trading, which has emerged as a bit of a soft spot on Wall Street in the fourth quarter after blowout numbers earlier in 2009.

Analysts at Barclays Capital noted that core fixed income revenue tumbled 46% from a year ago, compared with their forecast for a 20% decline.

The quarter marks the first earnings report from Morgan Stanley (MS, Fortune 500) under the leadership of CEO James Gorman, who took over from John Mack on New Year's Day. Mack remains chairman.

"In a year of transition for our firm and the entire financial services industry, the employees of Morgan Stanley delivered substantially improved financial performance while also making significant progress on critical strategic initiatives that will drive our business in the years ahead," Gorman said in a statement Wednesday morning.

The securities firm said revenue for 2009 doubled from a year ago, excluding gains and losses tied to changes in Morgan Stanley's debt-related credit spreads.

Thanks to the intricacies of mark to market accounting, worries about a firm's creditworthiness as reflected in widening spreads can actually add to a firm's revenue, while improving spreads result in the reversal of those gains.

Including those changes, revenue rose 29% from a year ago to $23 billion.

Morgan Stanley also said it set aside $14.4 billion in 2009 for compensation and benefits for its workers, up from $11.1 billion in 2008. The bank pointed out though that it added some revenue and 19,000 employees last year through the creation of the Morgan Stanley Smith Barney joint venture with Citigroup (C, Fortune 500).

Average compensation per worker fell to $235,000 from $244,000 a year ago, though that figure isn't strictly comparable to the numbers being bandied about at the other big Wall Street firms.

Numbers released last week showed JPMorgan Chase (JPM, Fortune 500) had paid workers at its investment banking unit an average of $378,600, and Goldman Sachs (GS, Fortune 500) is expected to pay its workers an average well above $500,000 for 2009. Goldman is scheduled to disclose its numbers Thursday morning.

Morgan Stanley set aside $1.48 billion in the fourth quarter to pay workers in its institutional securities unit, which represents 45% of that division's revenue. That's well above the comparable figure at J.P. Morgan and is expected to handily exceed the number at Goldman.

Wall Street has come under intense criticism for paying out millions of dollars in bonuses just a year after big firms were bailed out by taxpayers.

Wednesday's numbers mark the second straight profit for Morgan Stanley after the firm was battered by three straight quarterly losses during the financial meltdown of 2008-2009.

The company initially posted a $2.3 billion loss for the fiscal fourth quarter of 2008, which ended in November of that year. But Morgan Stanley has since recast those results, following a change to a calendar year-end to conform with Federal Reserve rules.

Both Morgan Stanley and Goldman Sachs (GS, Fortune 500) submitted to Fed regulation in September of 2008, after investors' flight from credit markets threatened to bring down the firms. Morgan Stanley said earlier this year its recast fourth-quarter 2008 loss ballooned thanks to trading losses and credit valuation adjustments.

Morgan Stanley shares, which have risen 4% so far this year, were down about 1.5% in mid-afternoon trading Wednesday. To top of page