Morgan Stanley took $700 million of losses on real estate during the second quarter, when it took a net loss overall of about $1.2 billion.

The company saw continued improvement in its credit default spreads during the period and it was "among the first banks to repurchase TARP capital," moves "which are significant positive developments for the firm, but nonetheless had a negative impact on our results," said John H. Mack, chairman and chief executive.

"Morgan Stanley would have been solidly profitable this quarter if not for these two positive developments," he said.

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