Morgan Stanley Profit Falls 34%; Shares Decline

Morgan Stanley said Wednesday that its fiscal third-quarter profit tumbled 34%, falling short of estimates, as bond trading plunged. Shares of Morgan Stanley fell the most in two years, dragging down shares of other securities firms.

Net income in the three months ended Aug. 31 declined to $837 million, or 76 cents a share, from $1.27 billion, or $1.15, a year earlier, the New York-based company said.

Morgan Stanley fared worse than its Wall Street peers as the firm bet the wrong way on interest rates, Chief Financial Officer David Sidwell said on a conference call. Morgan Stanley’s investment banking and trading profit tumbled 43%, while commissions from selling to individuals declined.

In April, Morgan Stanley chief U.S. economist Richard Berner predicted that the yield on the 10-year Treasury note would rise to 4.7% in the third quarter, higher than the median forecast of 4.5% in a Bloomberg survey of 72 economists.

Bonds rallied during the period, and the 10-year yield declined to 4.12% at the end of the company’s fiscal quarter.

The company also said it agreed to pay $19 million to settle complaints by the New York Stock Exchange, including a case involving a former Morgan Stanley employee in Puerto Rico accused of stealing more than $56 million in client funds.

Shares of Morgan Stanley fell $3.66 to $48.72 on the NYSE.