Morgan Stanley has dented confidence in a potential recovery in investment banking after it failed to match analysts' estimates in the third quarter and took a $940m (€678m) hit in its sales and trading business. Lehman Brothers yesterday raised hopes that the worst of the credit crisis had passed by beating analyst expectations.

Morgan Stanley's third-quarter net profits fell 7% to $1.5bn compared to the same period last year, while the bank's earnings per share at $1.38 fell short of analysts' estimates at $1.55. Lehman yesterday yesterday cheered Wall Street as it opened the third-quarter reporting season with net profits of 3%, despite a $950m hit in fixed income trading, and exceeded analysts' expectations of earnings per share by six cents.