Profits at Morgan Stanley tumble

The credit crisis has eaten into profits at Morgan Stanley

Morgan Stanley has posted a sharp drop in second-quarter profits to $1.01bn as the credit crunch hit its trading and investment banking business.

America's second-largest investment bank blamed the 57% fall in profits on fallout from the credit turmoil.

However, the results beat expectations because the firm banked extra profits from selling some of its assets.

Morgan Stanley sold off its Spanish wealth management business for $1.43bn earlier this year.

Gloomy outlook

Matt McCormick, an analyst at Bahl & Gaynor, said that after stripping out the gain from selling off its business in Spain, the outlook was a less rosy.

"If you have to go all the way to Spain to make numbers, it's not good. How many more rabbits do they have in their hat?" he said.

The firm has had to write down $12.9bn since the middle of 2007, when the global credit crunch started to bite.

Across the board, global banks and brokerages have had to write down nearly $300bn from bets on mortgage-backed securities and other risky investments over the past year.

Chief executive John Mack said: "The difficult market conditions and lower levels of client activity impacted our results, particularly in fixed income and asset management."