Morgan's chief executive, Michael Dobson, said that much of the £40m cut was bonuses and reflected tough trading conditions. Dealing profits fell to just £50m after 1993's "stellar performance" of £219.3m, Mr Dobson said.
He remained firmly upbeat, however, pointing to the bank's 32 per cent return on capital and its £62.9m dividend to Deutsche. While pre-tax profit had fallen from £235.8m to £150.2m, all investment banks had suffered from last year's bond collapse, he said, and Morgan's non-trading activities were powering ahead.
Mr Dobson rejected claims that Morgan was dragging its feet over building a new equities business in London for Deutsche.
He said: "We're not going to make a big acquisition in investment banking for the sake of it. There's no panicky feeling that we've got to have it [an equities operation] now."
Mr Dobson said that Deutsche had not set any deadline for building Morgan into a top world investment bank based in London. "We imposed a five-year timetable on ourselves," he said.
Mr Dobson and Morgan's chairman, John Craven, are in talks with a number of top executives already heading up investment banks, in order to recruit the right people for the new equities operation.
Mr Dobson said: "We are very pleased with the very high quality of people, who are already doing responsible jobs, who are interested in the opportunities offered by the Deutsche link with Morgan."
He said in the uncertain climate following Barings and the aborted merger talks between SG Warburg and Morgan Stanley, now was an ideal time to recruit.
"I think we can cherry-pick what we want. If we bought an operation we would get some of what we want and a lot of what we don't want."