While most big banks reported earnings well in excess of analysts' expectations, Morgan Stanley reported just the opposite: A per-share loss of $1.10 for the second quarter vs. an average loss estimate of 49 cents. Investment banking was a strong point; underwriting revenues rose 19 percent to $855 million. But that wasn't enough to offset charges for losses on real estate investments and a special accounting charge created to securities linked to the value of its senior debt.

The accounting charge reduced Morgan Stanley's earnings by $1.32 per share. And hovering in the background of all this is Morgan Stanley's decision to ratchet back its trading activity. It's capital positions are strong and its VAR is low, but its newly conservative stance has not created big trading gains--the kind that Goldman Sachs enjoyed--that could have offset losses. 

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