Morgan Stanley (MS) on Wednesday posted a substantial fourth-quarter loss of $2.19 billion, or $2.24 per share, driven by "unprecedented market turmoil" and mortgage-related write-downs. Fixed income sales and trading -- which include its mortgage business -- registered net losses of $1.2 billion. "The global capital markets - and the financial services industry -- have experienced unprecedented turmoil in the past few months," chairman and CEO John Mack said. "These exceptional market conditions profoundly impacted our performance this year, especially in the fourth quarter." Despite the steep fourth-quarter loss, the firm reported a profit in the first three quarters of fiscal year 2008. Part of the reason for the quarterly gains thus far in the year is that Morgan Stanley benefited from the same accounting quirk that has helped more than a few monoline bond insurers in recent periods: a sharp drop in the value of the company's own debt (reflecting investor concern) led the firm to book $1.4 billion in paper gains in the third quarter. The same quirk occurred in the current quarter, as revenues included $2.1 billion in gains related to Morgan Stanley repurchasing its own debt at distressed levels. Despite the quirk, however, the company still posted a loss of $2.34 a share -- vastly surpassing the 34-cent per share loss predicted by analysts polled by Thomson Reuters, according to the Wall Street Journal. The firm's stock price began Wednesdayday by losing more than 8 percent after the announcement of the loss, but bounced back to end up 37 cents at $16.50 per share. Investors appeared to have recovered from the initial shock, but analyst Roger Freeman of Barclays Capital spoke with the Journal, warning that Morgan Stanley may not recover as quickly as investors appeared to be betting after it "lost money on its core operations." The firm targeted $2 billion in yearly cost savings, including head count  and compensation reductions. CEO John Mack, co-presidents Walid Chammah and James Gorman were reported to have foregone their 2008 bonus. Total year-end compensation for the firm's operating committee was reduced 75 percent, and compensation for the management committee was slashed by 65 percent, while severance expenses totaled $791 million, the company reported. Altogether, Morgan Stanley posted a yearly profit of $1.59 billion, $1.54 per share, for 2008, down almost half from the $3.14 billion, $3.13 a share, profit posted one year earlier. Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.