Morgan Stanley, one of a handful of Wall Street banking titans left more or less intact after the credit meltdown of the past two years, reported a second-quarter loss of $159 million that was significantly worse than analyst expectations.
Earnings were hurt by a charge from repaying government bailout money.
The New York-based Morgan swung to a loss applicable to common shareholders of $1.26 billion, or $1.10 per share, in the second quarter, compared with a profit of $1.1 billion, or $1.02 a share, a year earlier.
It was the company's third consecutive loss.
Net revenue dropped 11 percent to $5.4 billion.
During the quarter, Morgan Stanley repaid $10 billion from the government's Troubled Asset Relief Program, incurring a one-time charge of $850 million.
Chief Financial Officer Colm Kelleher, in an interview with Reuters Television, said the company was not satisfied with its performance in fixed income and asset management.
A drop in net revenue against a jump in compensation expenses contributed to the loss, as did a slight increase in non-compensation expenses.
The company said its earnings also were impacted by its joint Smith Barney venture with Citigroup.
As Morgan Stanley scaled back on risk after the collapse of the financial sector last fall, it found itself posting lackluster earnings compared with longtime rival Goldman Sachs , which last week reported net revenue of $3.4 billion.
Despite the second-quarter loss, Morgan Stanley set aside $3.9 billion for compensation expenses, up from $3.1 billion set aside a year earlier.
The bank, which ratcheted down risk-taking after the fall of some of its competitors last year, said its risk measurements were flat in the quarter.
The bank's "value at risk," a measure of the maximum possible losses it faced on 95 percent of its trading days, on average was $113 million, compared with $100 million a year ago and $115 million in the first quarter of 2009.
Morgan Stanley shares fell slightly in early trading Wednesday.
—Reuters contributed to this report.