NEW YORK (CNNMoney.com) -- Morgan Stanley reported a massive $2.3 billion quarter loss Tuesday that surpassed even the most dire predictions by analysts.

The nation's No. 2 investment bank posted a net loss of $2.24 a share, during the fourth quarter - a period defined by the collapse of Lehman Brothers and unprecedented market turmoil. Including results from discontinued operations, the company said it lost $2.34 a share.

Either way, the results were far worse than what analysts were anticipating. Consensus estimates were for a loss of $298 million, or 34 cents a share, according to Thomson Reuters.

Just a month ago, analysts were widely expecting Morgan Stanley to report a narrow profit for the quarter. But they steadily lowered their earnings expectations for the firm given the ongoing volatility in the financial markets.

John Mack, Morgan Stanley's chairman and CEO, blamed the quarter's results on unprecedented turmoil that has roiled the stock and credit markets and the entire financial services sector.

"These exceptional market conditions profoundly impacted our performance this year, especially in the fourth quarter," Mack said in a statement.

Investors, however, seem unfazed by the news. Morgan Stanley (MS, Fortune 500) shares, which have lost more than 60% of their value since Labor Day, rose about 2% Wednesday. The stock did fall in the morning following the release of the results.

A closer look

Nearly all of Morgan Stanley's key businesses were hit hard during the quarter. Revenues in its investment banking-related division tumbled from a year ago, as did the results of the company's prime brokerage business, which caters to hedge fund clients.

Morgan Stanley's asset management division, typically a consistent performer for the firm, was hit hard during the quarter by losses related to real estate and private equity. In addition, Morgan Stanley said there was a surge in the number of asset management customers cutting ties with the firm.

"Just the magnitude of the outflows is amazing - in a bad way," said Michael Wong, an equity analyst at research firm Morningstar.

Employees at Morgan Stanley suffered as a result of the dismal performance during the quarter as the company's bonus pool was cut in half from a year ago. Earlier this month, Mack opted to forgo his annual bonus for 2008, representing the second straight year he would not collect one.

Following the collapse of Lehman Brothers in mid-September, Morgan Stanley has scrambled to shore up its capital position.

The company raised nearly $25 billion in capital during the quarter, the bulk of which came from a $9 billion investment from the Japanese financial firm Mitsubishi UFJ (MTU) and $10 billion from the U.S. government as part of the bank bailout.

The New York City-based firm has made it clear it is looking to bulk up on deposits as a way of shoring up its funding sources. It has been widely reported that Morgan Stanley is looking at potential acquisitions of regional banks and has hired two retail banking veterans to help with those efforts.

At the same time, Morgan Stanley has scaled back on leveraged bets by cutting back on its residential mortgage origination business and its proprietary trading unit, which uses the firm's own money to make investments.

As a result, Morgan Stanley's total assets are down by more than a third so far this year to $658 billion, the company said Wednesday.

During a conference call with investors Wednesday, Colm Kelleher, Morgan Stanley's chief financial officer, said he expected the near-term environment to be very challenging, and warned that it could take additional writedowns in the future.

"We are expecting 2009 to be a year of transition," said Kelleher.

While painful, Wednesday's fourth-quarter numbers still paled in comparison to the same period a year ago. Morgan Stanley recorded a $3.59 billion loss during the same period in 2007 as a result of massive writedowns on its mortgage-related securities.

Just a day earlier, crosstown rival Goldman Sachs (GS, Fortune 500) reported a loss of about $2.1 billion, its first since the company went public in 1999.