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Pre-Market: Morgan Stanley Hit by Legal Costs; Sprint Explores Buying T-Mobile


Intel might have lost business due to the government shutdown.

Stocks are set to advance today as Morgan Stanley (NYSE:MS) reported earnings and the government reported that housing starts sped up last month.

Stock futures are mostly higher this morning. Dow (INDEXDJX:.DJI) futures were up 0.26% at 16,367. S&P 500 (INDEXSP:.INX) futures gained 0.26% to 1,841.00 and futures on the Nasdaq Composite (INDEXNASDAQ:.IXIC) rose 0.22% to 3,603.25.

Morgan Stanley's net profit fell 70% from a year earlier to $181 million, or $0.07 per share. Excluding non-recurring charges such as legal expenses, the owner of the largest brokerage was $0.50 per share, $0.06 more than expected. The brokerage benefited hugely from the worldwide rise in equity valuations in 2013 through its wealth management business. Revenue was $7.8 billion, just $200 million short of estimates. However it had to set aside $1.2 billion, or $0.40 per share, to cover the cost of litigation related to the selling of mortgage-backed securities in the lead-up to the financial crisis.

"Importantly, we are continuing to address many of the legal issues from the financial crisis," said CEO James Gorman. "We look forward to further progress on our strategic goals as we move into 2014 with strength and momentum."

Like its peers, Morgan Stanley also saw a decline in bond revenue as interest rates rose. Shares of the bank were up 1.2% in pre-market trading.

The Wall Street Journal reported that Sprint (NYSE:S) has received proposals from two separate banks to finance a takeover of T-Mobile US (NASDAQ:TMUS). The banks' proposals place T-Mobile's value at $31 billion, $5 billion higher than its market capitalization. To purchase the company, Sprint, which is owned by Japanese carrier Softbank (OTCMKTS:SFTBF), will have to take on T-Mobile's $20 billion in debt. It will also have to persuade Deutsche Telekom (OTCMKTS:DTEGY) to give up its two-thirds stake and convince the Justice Department to allow even further consolidation of the mobile carrier space. One source in the story, echoing T-Mobile CEO John Legere, said that if a merger occured, T-Mobile should be the one to acquire Sprint. In pre-market trading, T-Mobile shares rose 2.3%.

Intel (NASDAQ:INTC) shares fell 4% even though the company reported that earnings grew in the fourth quarter despite the weak market for PCs. After falling 3% year-over-year in the third quarter, PC sales, which account for more than half of all revenue, were flat in the fourth quarter. Server revenue rose 8%, but the government shutdown may have slowed enterprise sales.

"We saw a tapering off in order patterns at certain customers across certain segments," said CFO Stacy Smith. "We think that was driven by the government shutdown and uncertainty."

Total net profit rose 6.4% to $2.63 billion, or $0.51 per share. Analysts had expected EPS of $0.52.

Global shares were mixed in overnight trading with Asia ending the day lower and European indices trending higher. A report released today showed that homebuilders broke ground on new houses at an annual rate of 999,000 in December 2013. Economists had expected the rate to slow to 985,000 from 1.1 million in November of last year.

The Reuters/University of Michigan consumer sentiment index will be released later this morning. Economists expect it to come in at 83.5 this month, up from 82.5 in December 2013. A report on industrial production will also come out. Total production growth in November of last year is expected to have slowed to 0.3% from 1.1% in October.

Twitter: @vincent_trivett
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