Morgan Stanley yesterday became the second Wall Street firm this week to concede a massive hit from the credit crunch as the group announced a related $940 million (£470 million) writedown for its third quarter.

The writedown on the value of loans on its books and other financing commitments came after the sub-prime loans crisis developed into a broader credit crunch. It marks the bank’s first quarterly profits decline since John Mack returned to take the top job two years ago.

Morgan Stanley reported a 7 per cent drop in profits from continuing operations to $1.47 billion for the three months to September, as revenues rose by 13 per cent to $7.96 billion.

Investment banking revenues jumped by 45 per cent to $1.4 billion, asset management fees increased by 61 per cent to $1.36 billion and Morgan Stanley’s retail brokerage had revenue of $1.68 billion, up 23 per cent from the year before.

Morgan Stanley reported its profits a day after Lehman Brothers admitted it had lost more than $700 million from the credit crunch in the third quarter. This translated into a 47 per cent decline in revenues in its fixed-income business, which left the group with a 3 per cent decline in net income, at $887 million.

Goldman Sachs and Bear Stearns will report their third-quarter results tomorrow.

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