Morgan Stanley was today forced to write down $2.3 billion (£1.15 billion) as it became the latest Wall Street bank to be hit by turmoil in the financial markets.

The investment bank flagged losses of $1.2 billion relating to dodgy mortgages and a further hit of $1.1 billion on other investments in the credit markets for the first quarter.

Morgan Stanley, which reported its first-ever loss three months ago, also admitted that profits fell by a third to $1.55 billion in the three months to the end of February.

Chairman and chief executive John Mack, who called the bank's fourth-quarter losses "embarrassing", said: "While many of our businesses are facing challenging market conditions that we expect to continue in the months ahead, we are satisfied with how Morgan Stanley navigated the ongoing market turbulence."

Mack sought to allay investors' fears about a cash crunch on Wall Street in the wake of the Bear Stearns crisis. It followed similar moves by rivals Goldman Sachs and Lehman Brothers yesterday amid concerns that another major bank could go to the wall.

The Morgan Stanley results were a boost for Mack, who is trying to help the bank recover from a year when it suffered $9.4 billion in mortgage-related writedowns.

Like the Goldman and Lehman numbers, where profits halved and writedowns ran into the billions, Morgan's results were not as bad as feared.

Such has been the deterioration of the banking system that quarterly writedowns of $2 billion and profits falling by only a third are considered "good news".