Morgan Stanley (MS $13.43 -0.56) reported second quarter earnings of $0.28 per share including DVA, and $0.16 excluding DVA, vs. the $0.33 Capital IQ consensus, while revenues fell 24.5% year/year to $6.95 billion versus the $7.52 bln consensus... For the current quarter, income from continuing operations applicable to Morgan Stanley was $563 million, or $0.28 per diluted share, compared with income of $1.2 billion, or a loss of $0.36 per diluted share, for the same period a year ago. Results for the quarter included positive revenue of $350 million compared with $244 million a year ago related to changes in Morgan Stanley's debt-related credit spreads and other credit factors (Debt Valuation Adjustment, DVA). Excluding DVA, net revenues for the current quarter were $6.6 billion compared with $9.0 billion a year ago and income from continuing operations applicable to Morgan Stanley was $338 million, or $0.16 per diluted share, compared with income of $1.1 billion, or a loss of $0.46 a year ago.

Investment Banking-- Investment Banking revenues were $884 million. Sales and trading net revenues were $2.3 billion, or $1.9 billion excluding DVA. Fixed Income and Commodities and Equity sales and trading net revenues reflected the challenging global market environment with reduced levels of client activity. Advisory revenues were $263 million compared with $533 million a year ago on lower levels of market activity. Fixed income and equity underwriting revenues were $621 million compared with $940 million a year ago primarily reflecting lower market volume. Fixed income and commodities sales and trading net revenues were $770 million compared with $1.9 billion a year ago. Equity sales and trading net revenues were $1.1 billion compared with $1.8 billion in the prior year quarter primarily reflecting lower results in the derivatives and cash businesses. IB Expenses -- Compensation expense was $1.4 billion compared with $2.2 billion a year ago. The current quarter reflects an adjustment of approximately $160 million to reduce previously accrued discretionary above base compensation due to an updated 2012 financial outlook. The reported compensation to net revenue ratio was 44%; excluding DVA, this ratio was 49%. VaR -- Morgan Stanley's average trading Value-at-Risk measured at the 95% confidence level was $91 million compared with $84 million in the first quarter of 2012 and $145 million in the second quarter of the prior year. Company-wide Expense -- Compensation expense of $3.6 billion declined from $4.6 billion a year ago. Non-compensation expenses of $2.4 billion decreased from $2.6 billion a year ago. Capital Levels -- Morgan Stanley's Tier 1 capital ratio under Basel I was approximately 17.1% and Tier 1 common ratio was approximately 13.5% at June 30, 2012.17 At June 30, 2012, book value and tangible book value per common share were $31.02 and $27.70, respectively, based on approximately 2.0 billion shares outstanding. Potential Impact from Agency Downgrades -- As a result of a rating agency downgrade of the Firm's long-term credit rating in June, the amount of additional collateral requirements or other payments that could be called by counterparties, exchanges or clearing organizations under the terms of certain OTC trading agreements and certain other agreements was approximately $6.3 billion, of which $2.9 billion was called and posted at June 30, 2012.