The subprime mortgage mess was expected to wallop Wall Street, and it certainly did Morgan Stanley.

The firm reported third-quarter net income that was down 17 percent from the quarter a year ago and below analysts' estimates.

Morgan Stanley took a writedown of $940 million on loans. "The markdowns reflect the illiquidity created by current market conditions," the firm said.

It was the first quarterly earnings decline under C.E.O. John Mack.

Morgan Stanley earned $1.54 billion in the quarter, or $1.44 a share, compared with $1.85 billion, or $1.75 a share, in the quarter a year earlier. The results include the credit-card business Discover, which was spun off in June.  Excluding Discover, earnings fell 7 percent in the quarter. Net revenue rose 13 percent, to $8 billion.

The market turmoil and liquidity problems hurt the firm's fix-income business, where net revenue fell 3 percent in the quarter from a year ago.  

 Investment banking and the wealth management businesses were strong.

"Morgan Stanley's diversification across businesses and regions helped us deliver R.O.E. [return on equity] of 17.2 percent this quarter, despite the impact of the severe market disruption on some areas of the firm," Mack said in a statement.