Morgan Stanley, the US investment bank, today revealed that second-quarter profits have more than halved by more than $1.3 billion (£665 million) after a dire performance in its trading and investment banking divisions.

America's second largest securities group reported profits down 57 per cent, falling from $2.36 billion to $1.03 billion for the three months to May 31. Second-quarter revenue declined by 38 per cent to $6.5 billion.

John Mack, chief executive of Morgan Stanley, said: "Given the turbulent environment this quarter, we stayed close to shore and continued strengthening the firm's capital and liquidity positions."

Mr Mack added that "careful management of our capital, risk and liquidity leaves us well positioned to continue serving Morgan Stanley’s clients and seize attractive risk-return opportunities as we see them."

Morgan Stanley’s results were dragged down by $245 million in so-called staff reduction costs and a $120 million writedown in its fixed-income division.

The group’s institutional securities business, which includes capital markets and investment banking, reported a 77 per cent decline in profits. The asset management division reported a $227 million loss as revenues dived by 68 per cent.

However, the global wealth management unit saw its revenue rise by 48 per cent as profits nearly quadrupled, in large part because of the $698 million sale of the Morgan Stanley wealth management business.

Stripping out the sale, revenue rose by just 4 per cent in the second quarter.

Morgan Stanley reported its figures a day after Goldman Sachs cheered the markets with a better than expected 11 per cent decline in its second-quarter profit.

Last week, Lehman Brothers kicked off the second-quarter earnings season among the financial groups by unveiling a much larger than expected $2.8 billion loss.

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