Morgan Stanley earnings hit hard by ... good news on the credit front

After Citigroup and Bank of America both reported profits that were boosted perversely and dramatically (in Citi's case there would have been no profit without it) by declines in the value of their debt and debt-related derivatives, now we get the opposite situation in Morgan Stanley's quarterly earnings report:

these results were negatively impacted by the $1.5 billion decrease in net revenues related to the tightening of Morgan Stanley's credit spreads on certain of its long-term debt (MS debt-related credit spreads)

If it weren't for this, Morgan Stanley would have reported a profit for the quarter. That's right: Because credit markets gained confidence in Morgan Stanley's prospects, the company had to report that it lost money. Isn't mark-to-market accounting fascinating? At least in this case its impact is countercyclical—the usual complaint is that it artificially boosts earnings in good times and depresses them in bad times.

Morgan Stanley did benefit from the same fiscal-year move that Goldman Sachs did: By switching its fiscal year to begin in January instead of December, the company gets to forget forever about $1.3 billion in losses in December 2008. So it all evens out in the end. Maybe.