Morgan Stanley sees profits slump

John Mack took charge of Morgan Stanley in June

Morgan Stanley, the largest investment bank in the US, has suffered a sharp fall in profits after incurring huge costs at its aircraft leasing business.

Net income fell 83% to $144m (£79m) in the three months to the end of August, a period in which it also underwent a destabilising management change.

The bank's balance sheet was hit by $1bn of costs relating to the intended sale of its aircraft financing unit.

Morgan Stanley also paid out about $178m in severance and hiring costs.

'Room for improvement'

Chief executive Philip Purcell stepped down in June after being criticised by a group of former employees.

He was succeeded by former chief operating officer John Mack.

We still have a great deal of work to do John Mack, Morgan Stanley

Mr Mack said there was "substantial room for further improvement" in the business, despite a 29% rise in revenues to $6.9bn.

"We still have a great deal of work to do but the franchise is fundamentally strong," he said.

Morgan Stanley's figures contrast with those of other top US investment banks, which have benefited from a substantial increase in takeover activity in the US and elsewhere.

Goldman Sachs reported an 84% rise in profits on Tuesday while Lehman Brothers and Bear Sterns have also reported rising returns.