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Morgan Stanley has become the latest US bank to reveal the extent of its losses stemming from bad debts in the sub-prime mortgage market.

In a statement the New York-based bank confirmed that it expected to write-off of $3.7 billion (£1.8 billion) against its fourth quarter results.

The company confirmed that the anticipated loss would represent a decline of around $2.5 billion (£1.2 billion) in its post-tax net income for the period.

But Morgan Stanley warned: "The actual impact on the firm’s fourth quarter financial results, which will include results for the month of November, will depend on future market developments and could differ from the amounts noted."

The company stressed that while the write-downs would negatively impact upon fourth quarter results in the firm's fixed income business, "solid results" for each of Morgan Stanley's other businesses, including investment banking and equities, were expected.

Morgan Stanley also confirmed that it had reduced its net exposure to sub-prime debt, down from $10.4 billion (£4.9 billion) on August 31st to $6 billion (£2.9 billion) by October 31st.

Confirmation about the extent to which Morgan Stanley is exposed to bad debts in the US sub-prime mortgage market comes after its rival Merrill Lynch confirmed that the country's securities and exchange commission had begun an inquiry into how the company valued its sub-prime portfolio.

Rising default levels in the sub-prime market, which makes home-loans available to those on low incomes or with poor credit ratings, has fuelled speculation about the extent to which financial institutions are exposed to bad debts in the sector and prompted a global squeeze on credit as a result.

Last month Merrill Lynch's chief Stan O'Neal resigned after the bank reported sub-prime related losses, while the head of the world's largest bank was also forced to quit earlier this week.

Citigroup chairman and chief executive Charles Prince said he felt he should step down given the size of the recent losses recorded by the bank in the wake of the housing market crash in the US.