Revenue and adjusted earnings came in better than analysts were expecting, however, sending Morgan Stanley's stock price up 3 percent in early trading Friday.
The New York investment bank earned $433 million, or 20 cents a share, in the final three months of 2013. That compared to $982 million, or 49 cents a share, a year earlier.
Excluding litigation costs and a tax benefit, the bank earned 50 cents a share, beating the 44 cents forecast by Wall Street analysts. The results also exclude accounting adjustments related to the value of the bank's debt.
Morgan Stanley reported legal expenses of $1.2 billion related to mortgage-backed securities lawsuits and investigations for the quarter.
U.S. banks are still dealing with the fallout of the financial crisis more than half a decade after it began. JPMorgan on Tuesday reported results that were impacted by legal expenses and Citigroup said Thursday that it had $800 million in legal costs in the fourth quarter. Citi said it expected those kinds of expenses to continue for the banking industry.
Morgan Stanley's revenue rose 9 percent to $8.2 billion from $7.5 billion in the fourth quarter, beating analysts' forecasts of $8.02 billion.
"Our fourth-quarter results demonstrated the consistency embedded in our business model, as revenues increased year-over-year in all three of our business segments," James Gorman, the bank's CEO, said in prepared remarks. "Importantly, we are continuing to address many of the legal issues from the financial crisis."
For the year, Morgan Stanley's earnings rose to $3.5 billion, or $1.66 per share, excluding accounting adjustments related to the value of the bank's debt. That compared with $3.3 billion, or $1.64 per share, in 2012.
IPO BOOST: Revenue at Morgan Stanley's Institutional Securities unit edged higher to $3.7 billion from $3.6 billion a year ago, boosted by a big increase in stock underwriting as the market for initial public offerings improved. Bond underwriting fees fell slightly as investment-grade bond sales declined.
In line with other big banks that reported earnings this week, Morgan Stanley said revenue from its bond trading business fell.
THE WEALTH FACTOR: Morgan Stanley's wealth management unit brought in more fees, and clients moved more assets to the bank. Morgan Stanley has been building out its wealth management business to reduce its reliance on trading and securities sales.
TO-DO LIST: Morgan Stanley's CEO also outlined the bank's goals for this year. On Gorman's to-do list was returning more capital to shareholders by increasing dividends and stock buybacks. He also wants to further cut expenses this year and next and reduce the amount of risky assets the bank holds.
STOCK REACTION: Morgan Stanley's stock rose $1.05, or 3.3 percent, to $33.08 in early trading.