Morgan Stanley writes down $9.4 billion for bad debts

NEW YORK - Morgan Stanley, the second-largest U.S. investment bank, yesterday reported a $9.4 billion write-down from bad bets on mortgage-related debt, leading it to take a $5 billion infusion from an arm of the Chinese government.

The write-down, nearly triple the amount Morgan Stanley warned of in November, pushed the investment house to the first quarterly loss in its 73-year history.

Chairman and chief executive officer John Mack accepted blame for the fiscal fourth-quarter loss, and he said he would forgo his annual bonus, which last year topped $40 million.

Morgan Stanley becomes the latest Wall Street firm to be rocked by the unfolding credit crisis - and to be forced to reach out to a foreign government to secure a major investment to shore up its books. Major global banks and investment firms have lost $100 billion in the last six months alone.

"The results are embarrassing for me, and our firm," Mack said in a conference call with analysts. "Ultimately, accountability for our results rests with me."

Mack aggressively expanded Morgan Stanley into the home-loan industry, and trading in securities that support it, in the last year. That strategy backfired, and Mack pinned the disappointing results on "isolated losses by a small trading team in part of the firm" whose members were fired.

Similarly large write-downs have caused the ouster of Merrill Lynch & Co. Inc. chief executive Stan O'Neal and Citigroup Inc. chief executive Charles Prince. Last month, Morgan Stanley pushed out copresident Zoe Cruz in a shake-up of its top ranks.

This year's write-downs also have caused a number of global banks to seek capital from so-called sovereign-wealth funds, government-controlled investment funds such as China Investment Corp. Its investment announced yesterday will be up to 9.9 percent of Morgan Stanley's shares once the stake converts into common stock in 2010.

Morgan Stanley said it lost $3.61 billion, or $3.61 a share, in the fourth quarter, compared with a profit of $2.27 billion, or $1.44 a share, in the 2006 period. The investment house reported negative net revenue of $450 million because of the write-downs, compared with revenue of $7.75 billion a year earlier.

Results broadly missed Wall Street projections for a loss of 39 cents a share on revenue of $4.23 billion, according to analysts polled by Thomson Financial.

The results also led to warnings from major rating agencies about potential downgrades. Among them was Standard & Poor's, which said the "dismal fourth-quarter results heightened our concern regarding its strategic direction and risk appetite."