Morgan Stanley’s profit fell 24% in the second quarter, due to declines in institutional trading and underwriting, the company said today.

The big Wall Street investment bank said net income fell to US$928 million for the second quarter ended May 31, or US86¢ a share, compared with US$1.22 billion, or US$1.10 a share, for the year earlier.

Revenue fell 9% to US$6.04 billion from $6.65 billion.

The firm’s profit was down 24% from the second quarter of 2004 and 34% from the first quarter of 2005. The annualized return on average common equity was 13.1% in the current quarter, compared with 18.4% in the second quarter of 2004 and 19.7% in the first quarter of 2005.

The results for the quarter include net expenses of approximately US$140 million related to various legal matters. The initiation of settlement discussions in the Parmalat matter, subsequent to the earnings pre-announcement on June 13, accounted for the majority of this amount. The company did not record any changes to legal reserves regarding the Sunbeam/Coleman matter.

Revenues were 9% lower than last year’s second quarter and 12% below this year’s first quarter. Non-interest expenses of $4.6 billion were 4% lower than a year ago and 2% below last quarter.

Outgoing chairman and CEO, Philip Purcell, said, “Our firm can be proud that despite some difficult markets and trying circumstances we have stayed focused on clients and produced substantial profits for our shareholders.”

The Institutional Securities division posted pre-tax income of US$830 million, down 27% from the second quarter of 2004. Net revenues were 15 % lower, reflecting declines in fixed income sales and trading and equity underwriting. Advisory revenues were up 10% from the second quarter of 2004. But, underwriting revenues were down 33% as fixed income underwriting revenues declined 8%, and equity underwriting revenues fell 54%.

Fixed income sales and trading net revenues were US$1.3 billion, down 28% from a strong second quarter of 2004. Equity sales and trading net revenues were essentially flat.

The Individual Investor Group reported pre-tax income of US$118 million compared to $132 million in the second quarter of 2004. Net revenues were up 2% from a year ago. Asset management, distribution and administration fees increased 14% on higher client asset levels in fee-based accounts. This increase was partially offset by a 12% decline in commissions, reflecting lower transaction volumes.

Investment Management reported pre-tax income of US$175 million, 16% lower than last year’s US$209 million. Credit Services posted pre-tax income of US$242 million on a managed basis, down 19% from US$298 million a year ago.

The firm noted that on April 4, its board of directors authorized management to pursue a spin-off of Discover Financial Services. “The company continues to analyze the merits of a spin-off, with focus on how to ensure the transaction enhances overall shareholder value and positions Discover as a stand-alone public company,” it said.