Morgan Stanley plans to lose nearly 10 per cent of staff across two of its three divisions.

The American investment bank is the latest to wield the axe, following hard on the heels of Goldman Sachs, which said last month that it was cutting almost 3,300 jobs, or about 10 per cent of its staff.

Morgan Stanley's cuts will fall hardest on its institutional securities group, which incorporates investment banking, sales and trading, with 10 per cent of staff in the division facing redundancy. Nine per cent of staff in asset management will lose their jobs, with only global wealth management completely escaping the cutbacks.

The bank declined to give an overall number for the job cuts or to say how quickly they would take effect. However, it is understood that 10 per cent of its London staff in institutional securities and asset management will go.

Financial services jobs in London have been hit hard by the credit crunch. The Centre for Economics and Business Research, the think-tank, is forecasting that a total of 6,500 jobs will be lost in the City this year.

Speaking at Merrill Lynch's financial services investor conference in New York on Wednesday, James Gorman, co-president of Morgan Stanley, said: “We're in a period of tremendous dislocation. We're very mindful of the environment that we live in at the moment and we will continue to rationalise headcount and costs accordingly.”

Morgan Stanley and Goldman Sachs both became bank holding companies in the wake of Lehman Brothers' collapse in September. The change was designed to protect the banks from the financial chaos that pulled down Lehman, but it also requires them to reduce leverage, which will have a knock-on effect on profitability.

Morgan Stanley's shares fell by 80 cents, or 5.7 per cent, to $13.28 after Mr Gorman's comments. They began this year at $53.11. Mr Gorman told the conference that Morgan Stanley would “reshape” operations in prime brokerage, proprietary trading, principal investments and commercial real estate operations, the areas worst hit by the credit crunch.

Jamie Dimon, JPMorgan's chief executive, said yesterday that the company expected to increase provisions for bad debts, raising fears that the American bank may be planning to cut jobs. Mr Dimon also said that selling sub-prime assets of Bear Stearns, the near-bankrupt rival that it bought in the spring, had cost it about $10 billion (£6.6 billion) more than it had expected.

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