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Morgan Stanley Takes A Hit

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Argh, matey. Yesterday it looked as if Wall Street might have found a way to dodge serious losses from this summer's credit crunch. Lehman, which was widely viewed as one of the most vulnerable Wall Street firms (along with Bear Stearns), beat expectations with its earnings. The brokerages and banks soared after the Fed announced rate cuts.
This morning looks a little different. Morgan Stanley "missed" this morning, with earnings that fell short of analysts' estimates. The short fall seems directly tied to the credit crunch, with the biggest losses coming in loans for leveraged buyouts and a decline in fixed-income trading revenue.
Third-quarter profit from continuing operations declined 7 percent to $1.47 billion, or $1.38 a share, from $1.59 billion, or $1.50, a year earlier, the New York-based firm said today in a statement. The people who sometimes seem as if they are paid to get earnings wrong had estimated that Morgan Stanley would report $1.55-a-share.
So how did Morgan Stanley get hit worse than expected and Lehman less? Some believe the difference may be a matter of accounting. With banks marking down assets due to the crunch there is some room for judgment calls.
"It looks to me that Morgan Stanley took a conservative, worst-case approach to the losses," one veteran Wall Street investor told DealBreaker this morning. "Lehman may simply more aggressive with its accounting, and may plan to roll the losses out over several quarters. Or it may believe it can overcome the losses as the credit markets ease."