Early on Wednesday, Morgan Stanley reported that its fourth quarter net loss narrowed to $2.30 billion, or $2.34 a share in the fiscal fourth quarter, compared to a loss of $3.59 billion, or $3.61 a share in the corresponding quarter a year ago. Net revenues came at $1.8 billion, compared with negative $400 million in the fourth quarter of 2007. Analysts on average were looking for a loss of $298 million, or 34 cents a share on revenue of $3.78 billion.

The firm suffered losses in various subdivision of its business. The company booked mortgage-related losses of $1.2 billion. Morgan Stanley also reported $1.8 billion in investment losses during the fourth quarter. In fixed income division, it posted a narrower loss of $1.2 billion compared to a loss of $7.9 billion in the year ago period.
However, for full fiscal year 2008, Morgan Stanley earned $1.59 billion, or $1.45 per share.

The company has been reducing the size of its balance sheet by selling assets and raising fresh capital. Total assets on Morgan Stanley's balance sheet fell to $658 billion from $987.4 billion at the end of August. In September, the bank sold 21% of its stake to Mitsubishi UFJ Financial Group, Inc. (NYSE: MTU) of Japan.

The investment bank firm converted itself into a fed regulated bank holding company after a severe turmoil in the financial market swallowed Lehman Brothers. The bank received $10 billion from the Treasury Department as part of the Trouble Assets Relief Program.

John J. Mack, Chairman and CEO, said in a statement "The global capital markets - and the financial services industry - have experienced unprecedented turmoil in the past few months. These exceptional market conditions profoundly impacted our performance this year, especially in the fourth quarter. However, we still achieved three quarters of profitable results and are moving aggressively to reposition the Firm for the future - continuing to resize our business, reduce legacy assets and further strengthen our balance sheet and capital position, which today includes an industry-leading Tier-1 capital ratio.”

Morgan Stanley also announced that it is targeting an additional $2 billion in cost savings including the annualized effect of the previously announced headcount reductions and additional non-compensation expense savings. CEO John Mack and two other top executives have waived their bonus completely. Total pay for its 47,000 staff was down 26% to $12.3 billion. Morgan Stanley has also eliminated 1000 positions at Canary Wharf, London.

On Wednesday, rival Goldman Sachs (NYSE: GS) posted a first ever loss since Wall Street Crash of 1929. The firm posted a fourth quarter net loss of $2.12 billion or $4.97 a share compared to profit of $3.22 billion $7.01 a share a year ago. The company's net revenue was negative $1.58 billion in the three months ended Nov. 28, compared with positive $10.74 billion a year earlier in the same period.

Shares of Morgan Stanley fell over 6% in morning session Shares are down over 70% from 52 week high of $55.39.

Disclosure: Author does not own any of the stocks discussed here.