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Bond trading, Japanese investment pull down Morgan Stanley

Bond trading revenue decreases, along with losses at a Japanese investment, caused Morgan Stanley's first-quarter income to fall by 48 percent

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A sign is seen on the exterior of the headquarters of investment bank Morgan Stanley in New York City, in this September 17, 2008 file photo. Morgan Stanley's first-quarter profit fell nearly 50 percent, but the results were better than many analysts had forecast thanks to stronger-than-expected fixed-income trading revenue. The bank's shares rose 2.9 percent as investors grew hopeful that its long-troubled bond trading business was closer to being fixed.

Mike Segar / Reuters / File

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NEW YORK (AP) — A sharp drop in bond trading revenues and deep losses at a Japanese investment led to a 48 percent decline in Morgan Stanley's first-quarter income.

The New York investment bank booked $655 million in losses from its 40 percent stake in a Japanese joint venture, Mitsubishi UFJ Morgan Stanley Securities. The venture lost more than $1 billion from bets in the fixed income markets, while operating expenses soared.

The joint venture was part of a $9 billion investment that Morgan Stanley received from Mitsubishi at the height of the financial crisis in 2008. Morgan Stanley's chief financial officer, Ruth Porat, said in a conference call with analysts Thursday that Mitsubishi is replacing the leadership at the joint venture and has started a "thorough and strategic risk management review" there.

Mitsubishi is also converting its $7.8 billion convertible preferred shares into common shares in Morgan Stanley, pending a review by U.S. regulators. The move will save Morgan $784 million in annual dividends and give Mitsubishi a 22.4 percent stake in Morgan Stanley.

Investors liked what they heard. Morgan Stanley's stock rose 1.7 percent to close at $26.48 Thursday.

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