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Morgan Stanley earnings exceed expectations

Morgan Stanley reported earnings yesterday that fell less than analysts had expected as record equity sales and trading offset write-downs from the collapse of the subprime-mortgage market.

Morgan Stanley reported earnings yesterday that fell less than analysts had expected as record equity sales and trading offset write-downs from the collapse of the subprime-mortgage market.

The securities firm reported a 42 percent drop in first-quarter net income, to $1.55 billion, or $1.45 a share. Analysts had estimated profit of $1.01 a share.

Profit and return on equity exceeded results reported Tuesday by the Goldman Sachs Group Inc. and Lehman Bros. Holdings Inc., as equity-trading revenue surged 51 percent. The results may ease investors' concern that access to capital is dwindling after the Bear Stearns Cos. Inc. agreed to a takeover by JPMorgan Chase & Co. for a fraction of its market value.

"We had to come out of this week in regard to investment banks in general with more answers than questions," said Douglas Ciocca, a portfolio manager at Renaissance Financial Corp., of Leawood, Kan., which manages $1.7 billion, including Morgan Stanley stock. "We're certainly headed in the right direction."

First-quarter equity sales and trading revenue climbed to $3.3 billion, Morgan Stanley said in a statement, compared with a 19 percent drop reported Tuesday by Goldman Sachs.

Morgan Stanley shares climbed 59 cents, to $43.45, in New York Stock Exchange composite trading. The company's shares had staged their biggest gain in more than a decade Tuesday, climbing 18 percent. Financial stocks rallied after Goldman and Lehman reported profits and the Fed cut its benchmark interest rate three-quarters of a percentage point.

Morgan Stanley's first-quarter revenue fell 17 percent, to $8.3 billion, the company said. Return on equity, a measure of how effectively the firm reinvests earnings, dropped to 19.7 percent from 30.9 percent a year earlier. That compared with 15 percent at Goldman and 8.6 percent at Lehman.