Morgan Stanley Loses Big

Morgan Stanley seems to be the No. 2 Wall Street firm in more ways than just size. While Goldman Sachs generally pleased investors with earnings that could be read as not too far from expectations, Morgan Stanley on Wednesday posted a far-greater-than-projected loss of $2.4 billion for its fiscal fourth quarter.

The newly christened bank holding company said sliding asset values had driven losses and pledged $2.0 billion in cost-cutting in the coming year.

The New York-based firm lost $2.34 per share for the quarter ended Nov. 30 and posted a full-year deficit of $3.6 billion, or $3.61 per share. Analysts had forecast a loss of only 34 cents per share. Total assets under management fell by 28.0% ,to $546.0 billion year over year and the bank's leverage was reduced significantly to 11.4 from 32.6 according to TradeTheNews.com.

On Tuesday, Goldman Sachs (nyse: GS - news - people ) also announced a larger-than-consensus quarterly loss, though it fell within the range of Wall Street's worst forecasts and Wall Street seemed happier with the company's prospects than it did on Wednesday with Morgan's.

Investors pushed Morgan Stanley down 3.9%, or 63 cents, to $15.50, in premarket trading. On Monday, the shares had closed at $13.64, so that’s still a good two-day gain, but the stock traded over $55 less than a year ago. Goldman, by contrast was down only 1.4% Wednesday morning, to $74.95, a $1.05 loss.

Morgan Stanley's dissapointing performance came during a quarter reversals of fortune for once hubris-filled financial industry. The bankruptcy of Lehman Brothers (nyse: LEHMQ - news - people ) and the sale of Merrill Lynch (nyse: MER - news - people ) to Bank of America (nyse: BAC - news - people ) revealed the weakness of these highly leveraged businesses. The wild swings in markets left only Goldman and Morgan as independent bulge-bracket brokerage houses.

In October, Morgan Stanley spent $23.0 billion to buy securities from money-market and similar funds it manages to cover $46.0 billion in outflows. (See "Morgan Stanley Forked Out $23B To Float Funds") Earlier in the the beleaugered firm received a $9.0 billion investment from Mitsubishi UFJ Financial Group in exchange for a 21.0% stake. (See "Morgan Stanley Can't Please Everyone.") That amount of money would now buy a little more than half of Morgan Stanley.