The postelection rally on Wall Street helped Morgan Stanley and Bear Stearns post strong profits yesterday, with the outlook for early 2005 brightening for both companies. The two Wall Street...

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NEW YORK — The postelection rally on Wall Street helped Morgan Stanley and Bear Stearns post strong profits yesterday, with the outlook for early 2005 brightening for both companies.

The two Wall Street firms surpassed Wall Street earnings estimates in their fourth-quarter results and year-end earnings, but questions remained about Morgan Stanley’s investment strategies and whether Bear Stearns would be sold or remain on its own.

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For the quarter ending Nov. 30, Morgan Stanley’s profits rose 18 percent. The company earned $1.2 billion, or $1.09 per share, compared with $1 billion, or 92 cents per share, in the same quarter a year ago. Revenues for the quarter rose 7 percent to $5.4 billion, compared with $5.1 billion last year.

Morgan Stanley’s earnings beat the $1.01 per share expected by analysts surveyed by Thomson Financial, but revenues fell short of the $5.8 billion analysts had expected — a disappointment given the major stock-market rally that began just before the Nov. 2 elections.

Bear Stearns fared better for the quarter, reporting net income of $352.6 million, or $2.61 per share, compared with $288.3 million, or $2.19 per share, for the fourth quarter of 2003. Revenues rose 19.4 percent to $1.83 billion from $1.53 billion a year ago.

Analysts surveyed by Thomson Financial had expected earnings of $2.14 per share on revenues of $1.55 billion.

Yet the companies’ shares went in opposite directions. Morgan Stanley rose 85 cents to close yesterday at $54.50, while Bear Stearns fell $1.80 to close at $102.70.

“I think, in the case of Bear Stearns, is one of ‘Buy on the rumor, sell on the news,’ ” said David Trone, senior brokerage analyst at Fox-Pitt Kelton. “And for Morgan Stanley, given the problems they’ve had, I think people wanted to be sure that the news really was good before they bought.”

Analysts said that Bear Stearns’ strong earnings — the brokerage also posted a record 2004 — may have given investors reason to think that the company, long thought to be on the block, may forgo a sale. With that scenario appearing to be less likely, investors may have thought the company was overvalued.

“You also have to look at expectations, which were really higher than the analyst estimate led you to believe,” said Richard Bove, brokerage analyst with Punk, Ziegel. “I think people expected more from its New York & Co. IPO, too.”

Clothing retailer New York & Co. went public on Oct. 7, with Bear Stearns as one of its primary underwriters. The company posted $160 million in gains from the transaction — less than many analysts had expected.

IPOs at Morgan Stanley, however, continued to be a strong suit, with the company ranking first in global initial public stock offerings and second in completed merger and acquisition deals around the world. With a fresh spate of mergers in December and more expected in early 2005, investors could see earnings continue to grow.

“I think because of the bad trades they had in the past, people were waiting to see whether they could turn it around,” Trone said. “It wasn’t impressive, but it was OK, and there’s definitely a sense that they will improve more in 2005.”