Morgan Stanley's earnings dropped 25 per cent in a roller-coaster second quarter, reflecting losses in aircraft leasing and stockbroking, the cost of litigation and weakness in credit-card lending.

The US investment banking and financial services conglomerate made $599 million (€512 million), thanks to $1.3 billion in fixed-income sales and trading revenues, which increased 48 per cent from last year.

Mr Stephen Crawford, chief financial officer, said the quarter ended on a hopeful note with the winding down of the Iraq war and apparent progress fighting the SARS epidemic.

However, he added: "It is still too early to call a bottom."

The results indicated that Morgan Stanley was still trying to cope with weakness in the economy and the unpredictable outcome of court cases involving Wall Street scandals.

The difficult period was symbolised by the explosive growth in the expense line marked "other", which rose 144 per cent from last year to $633 million.

Fuelling the rise was a $287 million pre-tax charge for the declining value of the company's aircraft leasing business.

Morgan Stanley's aircraft-leasing woes are well known on Wall Street, and Mr Crawford fended off suggestions that the company would have to take more charges.

"Other" expenses were also increased by an $80 million pre-tax charge for litigation costs related to initial public offerings.

The group also lost $2 million in retail brokerage. Non-interest expenses were 10 per cent lower than last year. - (Financial Times Service)