Morgan Stanley Profit Down 5% for Quarter

Morgan Stanley Dean Witter & Co. said its third-quarter net income fell 5%, to $645 million, or $1.05 a diluted share, as a hedge fund it manages lost more than $200 million in emerging markets.

The investment bank fared better than rivals who have reported trading losses after Russia’s default and currency devaluation last month triggered declines in debt markets worldwide. Morgan Stanley’s profit performance also exceeded analysts’ estimates of $1.03 a share.

Lehman Bros. Holdings Inc., for example, said Wednesday that its fiscal third-quarter earnings dropped 23%, to $151 million, or $1.10 a diluted share, as trading revenue plunged 66%.

However, Morgan Stanley’s stock fell along with other financial shares, after 16 banks, including Morgan Stanley, agreed to provide $3.5 billion to rescue hedge fund Long-Term Capital Management.

Morgan Stanley didn’t have that much exposure to the hedge fund and participated in the bailout because it was concerned about how Long-Term’s collapse would affect already shaky markets, said Robert Scott, chief financial officer.

In the latest quarter, Morgan Stanley said its net revenue fell 6.6%, to $3.84 billion. The company returned 19% on equity, a key measure of profitability, down from 23% in the year-ago period.

Net income from asset management plunged 83%. Profit at the securities business grew 22%.

Profit from credit cards, mainly the Discover credit card, gained 31%, as revenues were boosted by an increase in late and overlimit fees. Trading dropped 36% to $499 million. Commission revenue advanced 8.9%.

Morgan Stanley shares fell $5.69 to close at $51.56 on the New York Stock Exchange.