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Morgan Stanley earnings fall sharply

Morgan Stanley misses Wall Street expectations as revenue for its investment banking unit falls 37 percent. Morgan Stanley stock drops.

By Christina RexrodeAP Business Writer / July 20, 2012

The headquarters of Morgan Stanley in New York is displayed in this June file photo. Morgan Stanley earned 29 cents a share, less than analysts' consensus estimate of 32 cents.

Eric Thayer/Reuters/File

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NEW YORK

Morgan Stanley said Thursday its revenue fell sharply in the second quarter, dragged down by weak results from its investment banking unit. Its net income missed Wall Street expectations, and its stock dropped sharply.

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The bank brought in 24 percent less revenue overall, but the decline was especially evident in investment banking, where revenue plunged 37 percent.

In that unit, revenue from advising businesses was down by half. Bond and commodities sales and trading was down by nearly 60 percent. Stock sales and trading fell nearly 40 percent.

In a statement, CEO James Gorman described the April-June period as "an environment marked by investor caution."

The bank earned $564 million for the quarter, a swing from a loss of $558 million in the same period last year. In last year's second quarter, Morgan took big charges so it could cut down on expensive dividend payments to Mitsubishi UFJ Financial Group, a Japanese financial firm that gave the bank a life-sustaining cash infusion in the depths of the 2008 financial crisis.

Earnings came to 29 cents per share, lower than the estimate of 32 cents from analysts surveyed by FactSet, a data provider.

Morgan Stanley stock was down 68 cents, or 4.9 percent, to $13.99 in premarket trading. The stock was above $30 as recently as February 2011.

The revenue decline is an unwelcome trend for Morgan Stanley, but one it shares with most of its peers.

Bank of America, Citigroup, JPMorgan Chase and Goldman Sachs all reported lower revenue. Only Wells Fargo reported higher revenue, mostly because it issued more mortgage loans.

Besides Wells Fargo, the five other banks rely heavily on their investment banking units, which can offer spectacular gains in good times but carry more risk in a weak economy and when financial markets are choppy.

The results also underscore why Gorman is so eager to buy up the rest of Morgan Stanley Smith Barney, the retail brokerage that Morgan Stanley owns with Citigroup. Morgan Stanley wants to raise its stake to 65 percent from 51 percent and is haggling over a price with Citi.

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