Morgan Stanley today reported that third quarter net income plunged 83% from the same quarter last year to just US$144 million, due to a US$1 billion loss on discontinued operations.

Results for the third quarter include an after-tax charge of approximately US$1 billion for discontinued operations related to the planned sale of the company’s aircraft financing business.

Income from continuing operations was almost US$1.2 billion for the quarter, an increase of 36% from the third quarter of 2004 and 25% from the second quarter of 2005.

The annualized return on average common equity from continuing operations on a pro forma basis was 17.1% in the current quarter, compared with 13.3% in the third quarter of 2004.

The results for the quarter also include compensation charges for senior management severance and new hires. These charges increased non-interest expenses by approximately US$178 million.

The firm reported net revenues of US$6.9 billion, 29% higher than last year’s third quarter and 15% above this year’s second quarter. Non-interest expenses of US$5.2 billion were 26% higher than a year ago and 12% above last quarter.

“Morgan Stanley achieved strong revenue growth this quarter, particularly across all aspects of our institutional securities business. Given the management changes and other distractions the firm has faced over the past nine months, this impressive performance is a testament to the talent and commitment of our people and the fundamental strength of our franchise,” said John Mack, chairman and CEO, in a release.

“Institutional securities achieved record revenues, with fixed income’s best third quarter ever and strong results in both equities and investment banking. We maintained our #1 position in M&A, we were #3 in global IPOs, and we were #5 in global debt and equity underwriting,” he noted.

“Even with this quarter’s strong performance, we believe there is substantial room for further improvement over time, both to grow the business and to improve profitability,” he added.