NEW YORK, (AP) – Morgan Stanley said Wednesday it lost more than $1.2 billion during the second quarter as it took a charge to repay government bailout money. The investment bank was also hurt for a second straight quarter by the improving value of its own debt.

Morgan Stanley said its net loss after payment of preferred dividends was $1.26 billion, or $1.10 per share, during the quarter ended June 30. The New York-based bank earned $1.06 billion, or $1.02 per share, during the same quarter last year.

Analysts polled by Thomson Reuters, on average, forecast a loss of 49 cents per share for the quarter.

Unlike competitors Goldman Sachs Group Inc. and JPMorgan Chase & Co., Morgan Stanley’s trading profits and investment banking revenue, while strong, were unable to offset mounting charges during the second quarter.

Both Goldman Sachs and JPMorgan Chase last week reported profit of more than $2.7 billion.

Morgan Stanley’s results were significantly hampered by an accounting rule related to the value of its debt. The rule requires companies, on paper, to record a loss to cover the additional cash it would need to meet its obligations when its debt is worth more.

Essentially, if Morgan Stanley had to buy its debt back at the end of the second quarter, it would have had to pay more for it than it would have a quarter earlier. So while the improving value of its debt means investors are more confident in its long-term prospects, it must take a loss because of that improving confidence.

That accounting rule reduced Morgan Stanley’s earnings by $1.32 per share in the second quarter.

Morgan Stanley also recorded an $850 million, or 74 cents per share, charge for repaying the money it received from the government under the Troubled Asset Relief Program. Last fall, amid the mushrooming credit crisis that led to the collapse of fellow investment bank Lehman Brothers Holdings Inc., the government provided hundreds of banks with loans to try and restart stagnant credit markets.

Last month, Morgan Stanley was one of 10 major banks that was approved to repay that loan. Morgan Stanley had received $10 billion as part of the government’s $700 billion program.

Morgan Stanley did see improved investment banking operations, which spurred big profits at its competitors. Morgan Stanley said underwriting revenues increased 19 percent to $855 million during the quarter. As credit markets have improved, more companies have tapped equity and debt markets to raise much-needed capital. Like Goldman, Morgan Stanley was able to take advantage of that pent-up demand for underwriting new offerings.

Both Goldman and JPMorgan Chase were among the other major banks that repaid TARP obligations last month.

Shares of Morgan Stanley fell $1.29, or 4.7 percent, to $26.27 in premarket trading Wednesday. Morgan Stanley shares closed at $27.56 Tuesday.