The phrase "be careful what you wish for" has probably never rung truer for Morgan Stanley.

The investment bank posted a first-quarter loss Wednesday, saying it would have been profitable if not for the sharp narrowing in the credit spreads on its bonds.

As a result of the better performance of its debt, the company was forced to write down the value, which led to a $1.5 billion accounting loss, or $1.15 a share.

The logic behind that rule is that if Morgan Stanley had to buy back its debt at current levels, it would have to pay more for it than it would have a year ago. (In the first quarter of last year the company was able to take a $1 billion gain as spreads widened.)

Overall, Morgan Stanley lost $177 million, or 57 cents a share, versus net income of $1.4 billion, or $1.26 a share, a year earlier. Wall Street analysts on average had been expecting a loss of 8 cents a share.

By midday the stock had dropped about 5%, though the decline had been sharper early in the session.

"Morgan Stanley would have been profitable this quarter if not for the dramatic improvement in our credit spreads — which is a significant positive development but had a near-term negative impact on our revenues," said John Mack, its chief executive.

First-quarter revenue from Morgan Stanley's global wealth management division decreased 44% from a year earlier, to $1.3 billion. Net income from the division dropped 88%, to $73 million.

However, the division also attracted $3 billion of net new client assets after recording $7.4 billion of net asset outflows in the fourth quarter.

The wealth management division's results reflected the difficult market. Total client assets dropped 26% from a year earlier, to $525 billion. Market conditions also spurred more clients to hold their money in cash. Deposits in Morgan Stanley's bank program increased 40% from a year earlier and 21% from the fourth quarter, to $46.8 million.

The company reported a net loss of 208 financial advisers over the quarter and now has 8,148.

In a conference call Wednesday morning, Colm Kelleher, Morgan Stanley's chief financial officer, said the decrease was a result of hiring fewer trainees in anticipation of a joint venture with Citigroup Inc.'s Smith Barney.

Annualized revenue per adviser decreased 18% from a year earlier but increased 4% from the fourth quarter, to $630,000.

Still, Alois Pirker, a senior analyst with the Boston consulting firm Aite Group LLC, said the division's results were better than those of Morgan Stanley's major competitors.

"While both Merrill Lynch and Smith Barney experienced net outflows of client assets of around $40 billion in the last quarter alone, Morgan Stanley actually saw net new assets of around $3 billion," Pirker said.

Mike Mayo, a banking analyst with Calyon Securities Inc., said during the call that Smith Barney's outflow of assets and loss of 2,582 advisers over the past year would soon become a problem under the joint venture.

"Are you concerned that your partner is not as strong as you thought before?" he asked.

Kelleher acknowledged that Smith Barney was experiencing "some attrition," but he cited the Barron's Top 100 Financial Advisors list, which included 33 people from Morgan Stanley or Smith Barney.

He also said that the advisers who had left were mostly lower producers.

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