Revenue excluding accounting adjustments climbed to $7.48 billion from $5.46 billion a year earlier, when the firm booked a $1.7 billion loss related to a settlement with bond insurer MBIA Inc. Book value per share rose to $30.65 from $30.53 at the end of September. The firm’s return on equity, a measure of how well it reinvests earnings, was 3 percent.

The accounting charge is known as a debt-valuation adjustment, or DVA. It stems from increases in the value of the company’s debt, under the theory it would be more expensive to buy it back. The firm booked a $2.3 billion charge in the third quarter as its credit spreads tightened.

Daniel Loeb’s Third Point LLC said this month it bought a stake in the firm, betting the shares may double as brokerage margins improve and management devises a “bold fix” for the bond-trading business.

Finding that solution falls to Colm Kelleher, who took control of the entire investment-banking and trading division this year as his co-head, Paul J. Taubman, 52, retired from that role. Kelleher, 55, is trying to boost the firm’s returns by cutting costs and reducing the amount of capital used by the trading business.

Fixed Income

Fourth-quarter revenue from fixed-income sales and trading, run by Ken deRegt with commodity trading co-heads Colin Bryce and Simon Greenshields, was $811 million, excluding DVA. That missed estimates of $1.24 billion from JPMorgan Chase & Co.’s Kian Abouhossein and $1.1 billion from Credit Suisse Group AG’s Howard Chen.

Fixed-income revenue fell 44 percent from $1.46 billion in the third quarter. Goldman Sachs Group Inc.’s fixed-income revenue, excluding DVA, climbed almost 60 percent from a year earlier to $2.12 billion, the company said Jan. 16. Citigroup’s jumped 58 percent to $2.71 billion, while JPMorgan Chase & Co. posted a 21 percent increase to $3.18 billion.

Banks including UBS AG have announced plans to exit some fixed-income businesses or shrink those units in response to higher capital requirements and lower revenue. Gorman said he has no plans to exit the business.

‘Completely Foolish’

“It would be completely foolish for Morgan Stanley to even approach that concept,” Gorman said today in an interview on Bloomberg Television with Erik Schatzker.