NEW YORK -- Morgan Stanley posted its third straight quarterly loss Wednesday, as the brokerage firm struggles to bounce back from last fall's market meltdown.

New York-based Morgan Stanley (MS, Fortune 500) lost $1.26 billion in the quarter ended last month. That compares with a year-ago profit of $1.06 billion, or $1.02 a share a year ago.

The company said that its net loss from continuing operations was $159 million, or $1.37 a share. Analysts surveyed by Thomson Reuters were looking for a 49-cent loss.

In a statement, Morgan Stanley said that there was improvement in its key investment banking and wealth management businesses. But chief executive officer John Mack added that the company is "not satisfied with our performance in other key areas of fixed income trading and in asset management, and we are taking steps to deliver better results in those businesses."

The results come on the heels of gaudy profit reports last week from Goldman Sachs (GS, Fortune 500) and other banking rivals. Goldman set aside more than $6 billion in the first half of 2009 for employee pay, in line with its payouts at the height of the credit bubble.

Those numbers raised eyebrows because like Morgan Stanley, Goldman survived last fall's market collapse only with considerable help from taxpayers. Both firms got $10 billion in loans from Treasury and became bank holding companies for the sake of gaining access to emergency lending from the Federal Reserve.

Accordingly, some observers see Goldman's massive profits coming out of the hide of taxpayers at a time when the economy continues to struggle.

That criticism isn't likely to be an immediate problem for Morgan Stanley, which has now lost nearly $3 billion over the past three quarters.

The second quarter caps off a period in which Morgan Stanley raised $10 billion in new capital to shore up its balance sheet and clear the way to repay its government borrowings. The bank repaid its Troubled Asset Relief Program loan in June.

The capital raising and a pullback from some risky bets have fortified Morgan Stanley's balance sheet. But now that financial markets are showing some signs of normalizing and peers such as Goldman and JPMorgan (JPM, Fortune 500) are pulling in huge trading profits, some observers say Morgan Stanley needs to show it can keep pace.

"Investors are understandably concerned that the government's zeal in requiring the company to raise capital will result in real difficulty" in generating adequate returns, Bank of America Merrill Lynch analyst Guy Moszkowski wrote last month.

Even so, Morgan Stanley shares have held their own this year, rising more than 75%. But the stock fell more than 5% in pre-market in trading Wednesday. 

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