Morgan Stanley said it was taking on new staff to improve performance
Morgan Stanley made a loss of $159m (£97m) between April and June, a significant drop on the $698m profit it made in the same period a year earlier.
It is the third consecutive loss for the Wall Street bank and was worse than analysts had expected.
It was also hit by the cost of repaying government funding. Including that charge, losses totalled $1.3bn.
However, a number of Morgan Stanley's rivals have reported significant jumps in second quarter profits.
Wells Fargo and Bank of New York Mellon said earlier their profits rose sharply between April and June.
And last week, Goldman Sachs and JP Morgan earnings also impressed investors.
Net profit at Wells Fargo was $3.17bn, a rise of 82% on the $1.75bn the bank made in the same period last year.
However, a big increase in bad loans meant that shares in the bank actually slipped.
Profits from continuing operations at Mellon came in at $501m, up 62% from the $309m it made last year.
"Overall, revenue has stabilised, we continue to gain market share and remain profitable," said Robert Kelly, boss of Mellon.
But it was the disappointing Morgan Stanley results that occupied traders' thoughts and sent the market lower.
The bank said it was disappointed by its performance in some divisions and was hiring "key trading and investment talent" to try and improve results in those areas.
Included in the results was an $850m charge incurred on its repayment of government money under the Troubled Assets Relief Programme (Tarp).