Morgan Stanley Says It's Ready to Rebound

Updated from 4:48 p.m. EDT

Morgan Stanley (MS Quote) CFO Colm Kelleher said Tuesday that the firm has moved past its subprime exposures and is ready to take advantage of asset prices that have reached "silly and irrational levels."

Morgan far exceeded expectations in an early announcement of third-quarter results on Wednesday, although tough market conditions caused profits to drop 8%.

The investment bank reported earnings of $1.43 billion, or $1.32 per share, down from $1.54 billion, or $1.44 per share, a year earlier. Revenue climbed 1% to $8 billion in the quarter ended Aug. 31.

Analysts had expected Morgan to report earnings of 78 cents per share on revenue of $6.32 billion, on average, according to Thomson Reuters. Following the announcement after the closing bell, shares of the New York-based brokerage reversed the day's 10.5% decline to $28.78, but more recently were up 2.4% to $29.40 in after-hours trading.

Kelleher said that Morgan issued the unexpected earnings report to highlight the "strength and robustness" of the firm and dispel market rumors. Speculation abounds about the fate of Morgan Stanley and its competitor, Goldman Sachs (GS Quote), the only two major U.S. brokerage houses that remain independent as competitors like Bear Stearns, Merrill Lynch (MER Quote) and Lehman Brothers (LEH Quote) were either acquired on the cheap or went into bankruptcy amid the housing and credit-market crises.

Although results have not improved on a year-to-year basis, the fact that Morgan Stanley has remained in the black -- and remained independent -- shows relative strength in a challenging environment. Investment banks are facing high credit costs, declining values for equities and commodities and clients fleeing the volatile markets.