The results were broadly in line with analyst’s expectations, although disappointing to a firm that has traditionally held itself up to be a standard bearer on Wall Street, especially in light of the strong results reported Tuesday by its rival Goldman Sachs.

But during a stretch of time that has seen the demise of one firm, Bear Stearns, and persistent speculation about another, Lehman Brothers, Morgan’s ability to generate a billion dollar profit, escape large write downs and not have to raise capital represents a small step forward.

Profits were bolstered by a non-recurring $700 million gain from the sale of its wealth management arm in Spain. Without that gain, the pretax profit would have been significantly lower.

Net profit of $1 billion, or 95 cents a share, was down 58 percent, from $2.58 billion, or $2.45 a share, in the period a year ago and 34 percent from the first quarter.

Revenue fell to $6.51 billion from $10.52 billion a year ago. Analysts had expected a profit of 92 cents a share and revenue of $7.05 billion, according to analysts surveyed by Thomson Financial.Morgan’s shares were down more than 5 percent in mid-morning trading.

“Given the turbulent environment this quarter, we stayed close to shore and continued strengthening the firm’s capital and liquidity positions,” the chief executive, John J. Mack, in a statement.

Dragging the results down was a poor showing for the firm’s institutional securities unit, traditionally a profit engine, which houses its best traders and investment bankers. Profit in the unit was down 77 percent compared with a year ago, on across the board declines in underwriting, advice given to corporate clients and most starkly, fixed income sales and trading, which was down 85 percent compared with a year ago.

The unit had close to $800 million in losses from trading and leveraged loans. Even a strong result from the firm’s derivatives outfit and its hedge fund servicing areas in the equity division was harmed by trading losses.

With a diverse stream of revenues, and its large retail brokerage and asset management businesses, Morgan Stanley remains less exposed to the troubled mortgage business than rivals like Bear Stearns and Lehman Brothers.

Still, under Mr. Mack, Morgan Stanley has had more than $12 billion in write-offs from various forms of exposure to subprime securities and leveraged loans, a result of a more risk-friendly approach he adopted when taking the reigns in 2005.

Chastened by the experience, one that caused some investors to question his ability to navigate the tight credit market, Mr. Mack and his top executives have aggressively trimmed the size of their balance sheet, raising capital and adopted a more cautious investment outlook.

Morgan shrunk its assets another 5 percent in the quarter and its leverage ratio, a crucial gauge of financial health, was lowered to 25 times down from 32 last summer as Morgan raised cash and built up its equity base. Exposure to troubled commercial real estate decreased from $23.5 billion to $22.1 billion.

Perhaps as troubling for Mr. Mack has been the continuing weakness of the firm’s asset management business, an area that he focused on from the very beginning as crucial to Morgan’s future.

For the second consecutive quarter, asset management recorded a loss — $227 million this period compared with $161 million in the first quarter, mostly from private equity and real estate. The unit was also hit by continued withdrawals from its large equity funds division which is experiencing a bad stretch of underperformance. Only 35 percent of the firm’s long-term assets were in the top half of Lipper rankings over the last year, a poor showing by any measure.