Profit falls for Morgan Stanley

Morgan Stanley is the second of the big US banks to report

Morgan Stanley has reported a fall in three-month profits as a result of the credit crunch caused by the sub-prime mortgage crisis.

Profit for the June to August period at the US's second-biggest investment bank fell 17% to $1.54bn (£770m).

Morgan Stanley said it had written down $940m of losses caused by problems in trading mortgages and corporate loans.

It is the second of the big US banks to report. Lehman Brothers reported a 3% fall in quarterly profits on Tuesday.

Bear Stearns and Goldman Sachs are both due to report three-month results on Thursday.

Morgan Stanley said that excluding the performance of Discover Financial Services, which is the credit card division it spun off in June, profits fell 7% to $1.47bn.

Default problems

There is great interest in how hard the big American banks have been hit by the sub-prime mortgage crisis.

The sub-prime crisis was caused by record levels of defaults by people with poor credit histories or low incomes who had been lent money to buy houses.

The amount of debt of questionable value in the market caused problems for banks that specialise in buying and selling it.