Morgan Stanley became the latest victim of the sub-prime credit crunch, after it posted a 17 per cent drop in profits for the last quarter.
The Wall Street investment bank saw income fall from $1.85 billion to $1.54 billion in the last three months in August.
The news follows the three per cent loss in profits posted by the Lehman Brothers on Tuesday.
John Mack, chairman and chief executive of the bank, told City AM that the bank had experienced, "severe market disruption on some areas of the firm, including our credit products, leveraged lending and quantitative strategies businesses."
Earnings per share of $1.38 were below the $1.55 that the bank had forcast but revenue in the investment bank division was up 45 per cent to $1.4 billion.
The bank felt heavy losses in the computer trading strategies.
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