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Morgan Stanley ended America's string of expectation-beating bank results on Wednesday when it reported a $177 million (£122 million) first-quarter net loss. Shares in the bank fell by 9.3 per cent in early trading but recovered to reach $24.03, 2.6 per cent lower than Tuesday's closing price, by 10.45am, as investors absorbed the worse-than-expected loss. Shareholders had previously been comforted by first-quarter profits at Goldman Sachs, JPMorgan Chase, Citigroup, Wells Fargo and Bank of America, despite evidence that bad debts were growing. Morgan Stanley made a profit of $1.4 billion in the same period last year, but the Wall Street bank's own debt has gained in value as investors' confidence about its future has increased. This means that it would be more expensive for the bank to buy back the debt. Accounting rules force Morgan Stanley to recognise this cost, which came to $1.5 billion. John Mack, the chairman and chief executive, said that the bank would have been profitable without this hit. Other banks reported gains in the first quarter from falls in the value of their debt. Mr Mack added that the near-term environment remained challenging. The $177 million headline loss does not take into account the impact of more than $400 million in payments to preference shareholders, including the US Government, which loaned the bank $10 billion as part of its $700 billion bailout last year. Payments to preference shareholders pushed the bank to a $578 million loss attributable to common shareholders, a more severe loss than analysts expected. Revenues were down 62 per cent on last year's $3 billion. Institutional securities, which includes investment banking, fared the worst, with a 66 per cent plunge in revenue to $1.7 billion. While other banks, such as Goldman Sachs, increased the risks they took and reaped the rewards, Colm Kelleher, Morgan Stanley's chief financial officer, said that the bank had been cautious. “We're ready to go when we see the right risk-adjusted returns,” he said. “We don't see it as a mortal sin being safe for an extra three months... The big swing for us this quarter was an unwind of what happened last year. We still feel we are positioned to take advantage of the market.” The company also made a $1 billion loss on its investments in real estate. The bank benefited from a $331 million gain after overseas earnings were taxed in the United States at a rate that was lower than expected. The bank cut its quarterly dividend by 81 per cent to five cents a share to save $1 billion a year. Morgan Stanley's global wealth management business made a $73 million net profit and spent $39 million on integrating its business with Citigroup's Smith Barney unit. Morgan Stanley will control the joint venture, which will become the world's biggest wealth manager when it is launched in the third quarter, at the latest. Compensation at the wealth management division was down, despite the fierce competition for good brokers. Merrill Lynch is trying to retain its brokers, some of whom were angered by the bank's merger with Bank of America, and UBS is hiring in the United States. Morgan Stanley's asset management business made a $418 million net loss as falling assets cut the amount of administration fees that the bank could charge clients.