Stocks struggle; a CEO sheds his bonus

What happens when a company writes off $9.4 billion, gets a $5 billion cash infusion from China and its CEO gives up his bonus?

The stock ends up among the top performers in the Standard & Poor's 500 Index.

On a day when the stock market went basically nowhere, that's precisely what happened to investment bank Morgan Stanley (MS, news, msgs). Despite arguably dreadful news (the huge write-off was double expectations), the stock finished up 4.2% on the day to $50.08. The percentage gain was good for sixth place among S&P 500 performers today.

Meanwhile, the Dow Jones industrials finished the day down 25 points to 13,207. The S&P 500 slipped two points to 1,453.

But the Nasdaq Composite Index closed up 5 points to 2,601.

Strong earnings reports from Oracle (ORCL, news, msgs) and Nike (NKE, news, msgs) pushed their shares higher in after-hours trading and may give the market a boost on Thursday.

Why did Morgan Stanley shares rise after taking huge losses because of bad investments in subprime-mortgage-related securities?

"They quantified damages, quantified remaining exposure and assigned accountability," Douglas Ciocca of Renaissance Financial in Leawood, Kan., told Bloomberg News.

Indeed, CEO John Mack gave up his bonus for the year and will have to content himself with his base salary of $800,000, not to mention $3 million in dividends from Morgan Stanley stock. Last year, Mack earned more than $40 million in salary and bonus.

Mack said he had to take responsibility for the company's problems that caused the stock to fall as much 35% between June 15 and Tuesday.

His strategy of expanding in mortgages and making bigger trading bets backfired as losses from securities linked to home loans more than doubled in November. Last month he ousted Co-President Zoe Cruz, who had overseen the fixed-income unit responsible for the mortgage trades, and promoted others to fix the problem.

• Talk back: Should Morgan Stanley's Mack have given up his bonus?

Today, Morgan Stanley said it lost $3.56 billion, or $3.61 per share, in its fiscal fourth quarter -- the first quarterly loss in the company's history. Analysts were looking for a loss of 39 cents per share. The company earned $1.98 billion, or $1.87 per share, a year ago.

At the same time, however, the investment bank said it had sold a 9.9% stake in itself to China Investment Corp. for $5 billion, thus improvising its capital position. The investment arm of the Chinese government bought a $3 billion stake in buyout firm Blackstone (BX, news, msgs) before the company's initial public offering last summer.

The investment continues a trend of investment arms of foreign governments buying stakes in big U.S. companies. The government of Abu Dhabi is now Citigroup's biggest shareholder after it bought a $7.5-billion stake in the largest U.S. bank.

• Get free, real-time stock quotes on MSN Money

Lehman Bros. (LEH, news, msgs) last week reported a decline in profit; Goldman Sachs (GS, news, msgs) on Tuesday reported a mere 2% rise in profit.

Bear Stearns (BSC, news, msgs) will report on Thursday. The Wall Street Journal reported today that CEO Jimmy Cayne will also forgo a bonus this year, and CNBC's Charles Gasparino reported that there are moves to ease Cayne out of the investment bank. Bear Stearns was down 2% to $90.60.

Oracle jumps on strong earnings

After the close, Oracle shares jumped 6.2% to $22.05 as it said that quarterly profit rose 35%. New software sales soared 38%, and the results beat Wall Street expectations at a time when investors are nervous that IT spending is slowing.

The world's No. 2 publicly held software maker reported fiscal-second-quarter net income of $1.3 billion, or 25 cents per share, compared with $967 million, or 18 cents, a year earlier.

The company said it had profit excluding items of 31 cents per share, beating analyst forecasts of 27 cents, according to Reuters Estimates. Revenue climbed 28% to $5.3 billion, above the Reuters average forecast of $5.04 billion.

Nike shares up on sales, profit gains

Nike shares shot up about 3% to $65.65 in after-hours trading today after the athletic footwear and apparel maker said second-quarter profit jumped 10%, helped by strong international demand.

Nike earned $359.4 million, or 71 cents per share, from $325.6 million, or 64 cents per share, a year earlier. Sales increased 14% to $4.34 billion.

Wall Street had expected the company to report earnings of 66 cents on revenue of $4.22 billion, Reuters said.

Nike, which recently announced it would buy British soccer brand Umbro, has managed to largely remain unaffected by a slump among U.S. mall-based retailers for athletic shoes.

Nike shares are up more than 30% this year.

Energy prices -- New York close

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$91.24	$90.08	$1.16	2.85%	49.45%
Heating oil (per gallon)	$2.5979	$2.5391	$0.0588	2.70%	62.58%
Natural gas (per million BTU)	$7.1790	$7.1410	$0.0380	-1.68%	13.97%
Unleaded gasoline (per gallon)	$2.3319	$2.3043	$0.0276	3.22%	45.55%

Economic worries weigh on market

While the Nasdaq was higher, the rest of the market struggled, reflecting continuing worries about the economy. Retailers, restaurants, home builders and railroads were among the biggest losers.

Plus, there was concern about the health of bond insurers after Standard & Poor's cut its ratings of MBIA (MBI, news, msgs) and Ambac Financial (ABK, news, msgs). MBIA fell 2.5% to $27.02. Ambac was up 1.8% to $27.46.

The market internals were weak. Seventeen of the 30 Dow stocks were lower today. Intel (INTC, news, msgs) was the Dow leader with a 1% gain to $26.19. Walt Disney (DIS, news, msgs) was the laggard, down 2.3% to $32.26.

More than 280 S&P 500 stocks were lower, along with 54 Nasdaq-100 ($NDX.X) stocks.

Apparel maker VF (VFC, news, msgs) was the S&P 500 leader, up 7.7% to $75.22.

The S&P 500 loser was Darden Restaurants (DRI, news, msgs), down 21% to $28.60. Late Tuesday, Darden reported a 30% profit decline on charges related to an acquisition and higher costs for food, beverages and labor. Traffic and same-store sales also fell at its Olive Garden and Red Lobster restaurants.

Merrill Lynch (MER, news, msgs) fell 1.4% to $54.73 on speculation it holds securities insured by ACA Capital Holdings (ACAH, news, msgs), whose credit rating was also cut by S&P.

SLM Corp. (SLM, news, msgs), better known as Sallie Mae, the largest U.S. education lender, plunged 20.7% to $22.89 after saying rising borrowing costs will slow profit growth.

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Home builder's loss quadruples

Home builder Hovnanian Enterprises (HOV, news, msgs) reported a net loss of $466.6 million, or $7.42 per share, in the fourth quarter -- roughly four times the $117.9 million, or $1.88 per share, the company lost in the same quarter last year. It was its fifth quarterly loss in a row.

• Video: More on Hovnanian's loss

Shares fell 11.4% to $7.44 on the day. Other home builders were down as well. The Philadelphia Housing Sector Index($HGX.X) was off 0.8% to 141.

Mortgage applications fall; so do foreclosures

The number of people applying for mortgages last week fell 19.5%, according to the Mortgage Bankers Association.

The MBA said its index of mortgage applications fell to 653.8 during the week ending Dec. 14, down from 811.8 the previous week.

The index hit a high of 1,865.7 during the week ending May 30, 2003, when housing was booming.

"The housing recession continues to grind away," Brian Bethune, an economist at Global Insight, told Bloomberg News. The more difficult lending market "has disqualified a large number of borrowers and continues to restrain demand."

• Video: Inside November's foreclosure numbers

The MBA's purchase index fell 11%, and its refinancing index plummeted 27%.

Separately, things looked a little better on the foreclosure side of things. Online marketing company RealtyTrac said the number of foreclosures fell 10% in November from October, to 201,950 for the month.

Still, on a year-over-year basis, the number of foreclosure filings was up 68%, which is pretty ugly.

"The true test of whether this ceiling will hold will come at the beginning of next year when we anticipate that a seasonal surge in foreclosure filings and another possible wave of resetting mortgages could place further pressure on the housing market," RealtyTrac CEO James Saccacio said in a statement.

Palm reports a loss

Palm (PALM, news, msgs) shares tumbled 6.9% to $5.52 after the company late Tuesday reported a fiscal-second-quarter loss of $9.6 million, or 9 cents per share -- far worse than the $12.8 million, or 12 cents per share, in profit the company earned in the same period a year ago.

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Adjusted earnings showed a loss of 7 cents per share -- a penny better than analysts expected.

Revenue fell 11% to $349.6 million in the quarter due to delays in some of its products. Palm had warned earlier this month that delays would hurt the company's earnings this quarter.

Palm also warned that revenue in its fiscal third quarter would be between $310 million and $320 million, below the consensus estimate of $358 million.

The company expects a loss between 14 and 16 cents per share, also below Wall Street's target of a 4-cent-per-share loss.

Banks borrow $20B from Fed

Banks across the U.S. have borrowed $20 billion from the Federal Reserve.

The Fed announced this morning that banks have borrowed the funds for 28 days at a rate of 4.65%. The auction was one of a number of planned auctions the Fed announced last week to help ease the liquidity problems hindering the financial markets.

The Fed's discount rate -- the interest rate charged to banks on loans they receive from the Fed -- is 4.75%, lower than the federal funds rate. The fed funds rate is the rate banks charge to lend money to each other.

Short hits from the markets -- 4 p.m. ET

	Wed.	Tues.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	2.835%	2.970%	-0.135	-7.65%	-41.97%
5-year Treasury note yield	3.473%	3.510%	-0.037	1.61%	-26.12%
10-year Treasury note yield	4.070%	4.120%	-0.050	2.47%	-13.59%
30-year Treasury bond yield	4.494%	4.543%	-0.049	2.07%	-6.72%
Currencies
U.S. Dollar Index	77.615	77.430	0.185	1.88%	-7.19%
British pound in U.S. dollars	$2.0000	$2.0149	-0.0149	-2.78%	2.06%
U.S. dollar in British pounds	£0.5000	£0.4963	0.0037	2.86%	-2.02%
Euro in U.S. dollars	1.4395	1.4413	-0.0019	-1.78%	9.05%
U.S. dollar in euros	€ 0.6947	€ 0.6938	0.0009	1.82%	-8.30%
U.S. dollar in yen	¥113.28	¥113.30	-0.02	2.09%	-4.82%
U.S. dollar in Canadian dollars	$1.003	$1.007	-0.004	0.34%	-13.93%
Canadian dollar in U.S. dollars	$0.998	$0.994	0.003	-0.34%	16.31%
Commodities
Gold	$805.40	$807.40	-$2.00	2.07%	26.24%
Copper	$2.9580	$2.8845	$0.074	-7.11%	3.03%
Silver	$14.2220	$14.2220	$0.06	0.40%	9.51%
Crude oil (NYMEX) (per barrel)	$91.24	$90.08	$1.16	2.85%	49.45%

A settlement over on online gambling

Microsoft (MSFT, news, msgs), Yahoo (YHOO, news, msgs) and Google (GOOG, news, msgs) have agreed to a combined $31.5 million settlement with the Justice Department for accepting ads promoting illegal online gambling.

The trio also agreed to stop accepting ads for sports wagering and other online gambling, Catherine Hanaway, U.S. Attorney for eastern Missouri, said today.

All three said they halted the practice years ago.

Microsoft agreed to a $21 million settlement. The company will forfeit $4.5 million, provide $7.5 million to the International Center for Missing and Exploited Children. And over the next three years, it will provide $9 million in public service ads that online gambling is illegal. (Microsoft is the publisher of MSN Money.)

Yahoo's $7.5 settlement includes a $3 million forfeiture and $4.5 million in public service ads over a three-year period. Google will pay $3 million.

Microsoft finished up 5 cents to $34.79. Google was up 0.6% to $677.37. Yahoo added 1.3% to $23.31.

By Charley Blaine and Elizabeth Strott