Morgan Stanley's Flight Plan Diverted

Updated from 12:21 p.m. EDT

Morgan Stanley's(MWD Quote) investors got what they expected Wednesday: second-quarter earnings that reflect Wall Street's deft use of the fixed-income markets to make up for anemic performance in equities and mergers. What they weren't prepared for was the black eye the investment bank got from problems afflicting an unrelated industry: airlines.

Morgan earned $599 million, or 55 cents a share, in the latest quarter, down from $797 million, or 72 cents a share, last year. The decline reflected a big charge against the bank's aircraft-leasing business, a writedown that lowered after-tax earnings by $172 million, or 16 cents a share.

The hit to earnings overshadowed performance in the company's fixed-income division, which enabled Morgan to squeeze out a 1.5% rise in revenue to $5.05 billion during a severe bear market. ...