(Agencies)
Updated: 2008-03-19 23:57

NEW YORK -- Morgan Stanley, one of the world's biggest investment banks, reported a lower first-quarter profit Wednesday but strong stock and bond trading pushed its results above Wall Street projections.

Its shares rose $4.02, or 9.2 percent, to $46.88 in morning trading, following a 17 percent gain in Tuesday's market rally.

The company said it earned $1.53 billion after preferred dividends, or $1.45 per share, down 42 percent from $2.66 billion, or $2.17 per share, in the year-ago period. Revenue fell 17 percent to $8.3 billion from $10 billion a year earlier.

But the lower results easily topped analysts' expectations for a profit of $1.03 per share on $7.19 billion of revenue, according to Thomson Financial.

John Mack, Morgan Stanley's chairman and chief executive, said the investment house known for its trading prowess "effectively capitalized on market opportunities and aggressively managed our positions."

Wall Street's biggest investment banks have suffered this year amid a deepening credit crisis, highlighted on Sunday when Bear Stearns Cos. agreed to sell itself to JPMorgan Chase & Co. at a bargain-basement price to avert bankruptcy.

The Morgan Stanley results follow better-than-expected earnings Tuesday from rivals Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. that helped spur a market rally. Morgan Stanley's results are yet another sign delivered this week that investment banks were better managing their liquidity problems.

"While many of our businesses are facing challenging market conditions that we expect to continue in the months ahead, we are satisfied with how Morgan Stanley navigated the ongoing market turbulence," Mack said in a statement.

However, Morgan Stanley — like its rivals — did show vulnerability to the ongoing credit crisis. It reported write-downs of $2.3 billion — including $1.2 billion from mortgage-backed securities and $1.1 billion from loans.

It also posted a pretax loss of $161 million in its asset management business from securities issued by off-balance sheet structured investment vehicles.

"Morgan Stanley produced an outstanding quarter in the face of asset write-downs and slowing capital markets activity," said Goldman Sachs analyst William Tanona in a note to clients.

Morgan Stanley had reported $9.4 billion of write-downs last year. To help manage risk better, the firm appointed Ken deRegt — who rejoined the company last month and once ran the investment bank's fixed-income business — as its new chief risk officer.

The institutional securities business — which includes investment banking and trading — posted $6.2 billion of revenue. The results marked the division's third-best quarter ever.

Meanwhile, volatility in the bond market pushed fixed-income sales and trading revenue to its second-best showing with $2.9 billion of revenue. Though offset by mortgage write-downs, Morgan Stanley relied on robust commodities and currency markets to drive results.

Morgan Stanley said it has not bought back any stock so far this fiscal year.