Morgan Stanley turned the first US investment banking institution to swallow the full impact of the liquidity crisis as it was enforced to write off losses of over $1.3bn in the three months to August.

The world’s second-largest securities firm has reported that its quarterly earnings has missed analysts’ estimations owing to losses on loans for leveraged buyouts and a declination in fixed-income trading returns.

The firm said that the third-quarter income from continuing processes felled 7 percent to $1.47 billion, as compared to $1.59 billion in the corresponding period of the last year. Earnings missed the $1.55-per-share average estimation in a Bloomberg review of 17 analysts, the first time in six quarters that Morgan Stanley failed to exceed anticipations.

Jordan Posner, a fund manager at Matrix Asset Advisors in New York, which holds Morgan Stanley shares, “The world that the investment banks live in has changed at least for some time.”

In an interview, Colm Kelleher, who is taking over as CFO at Morgan, stated that the recent credit disaster was more defective than the decline that accompanied the Russian debt default and the collapse of the hedge fund Long-Term Capital Management in 1998.

David Sidwell, the current chief financial officer, said, "There were amazing market disruptions during this quarter."

Morgan Stanley shares ascended $3.19 to $46.20 in late New York trading.

The firm stated that the earnings arose 13 percent to $7.96 billion. Return on equity from continuing operations, a measure of how effectively the firm reinvests earnings, dropped to 17.2 percent from 23.3 percent. Including results from the Discover credit card unit, which Morgan Stanley spun off in June, net income fell 17 percent to $1.54 billion.

Morgan Stanley said its equity-trading revenue climbed 16 percent to $1.8 billion. Fixed-income revenue declined 3 percent to $2.2 billion on broadly lower credit returns and a fall in commodities.

Investment banking made $1.4 billion in proceeds, a growth of 45 percent. Asset-management fees augmented 61 percent to $1.36 billion and retail brokerage had income of $1.68 billion, up 23 percent from a year earlier.