By Saabira Chaudhuri 

Morgan Stanley's fourth-quarter profit surged as the firm bounced back from a year-earlier period that was weighed down by large legal charges, but its revenue was hit by the same trading slowdown that hammered rivals last week.

Shares dropped 2.9% in recent premarket trading as results missed analyst estimates.

The bank reported a profit of $1.04 billion compared with a year-earlier profit of $84 million. Stripping out one-time items and accounting adjustments, profits were down at 39 cents from 50 cents a year earlier. Analysts polled by Thomson Reuters had expected adjusted earnings of 48 cents a share.

Among other items, the latest quarter's results include a tax gain of $1.4 billion and a compensation expense of $1.1 billion, while the year-earlier quarter included a pretax legal expense of $1.2 billion.

Revenue fell 1% to $7.76 billion, while revenue excluding accounting adjustments dropped 8.2% to $7.54 billion, coming in below analyst estimates for $8.08 billion.

Revenue from equities trading, an important profit driver for Morgan Stanley, rose to $1.6 billion from $1.5 billion a year earlier, but came in lower than what rival Goldman Sachs Group Inc. reported on Friday.

Morgan Stanley also joined Goldman, Citigroup Inc., Bank of America Corp. and J.P. Morgan Chase & Co. in posting lower revenue from fixed income, currencies and commodities trading, or "FICC", a business that has seen difficult trading conditions, walloping profits across Wall Street. Morgan Stanley's adjusted FICC revenue came in at roughly $599 million, down 14% from a year earlier.

Ahead of the firm's earnings report, Macquarie analyst David Konrad noted that Morgan Stanley--whose deal to sell its oil-trading and storage business to Russia's OAO Rosneft fell through last month--stands particularly exposed to gyrations in the commodities markets.

The firm's more stable wealth management business turned in stronger results. Revenue in that division rose 2.4% from a year earlier and edged up 0.8% from the prior quarter to $3.8 billion.

The wealth management unit's pretax profit margins, a closely watched efficiency metric, was 19% in the fourth quarter, flat with a year earlier and down from 22% reported in the third quarter. Morgan Stanley had previously said it is targeting a pretax profit margin of 22% to 25% by the end of this year.

Morgan Stanley logged lower expenses during the quarter, despite a 28% rise in compensation costs, part of which comes from its decision to start paying out a bigger slice of employees' bonuses immediately and to speed up the vesting period for certain cash deferrals.

Overall, noninterest expense was $7.9 billion, down 2% from the year earlier but up 18% from the third quarter.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

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