Morgan Stanley's Solid Quarter Rallies Stock

Updates with additional information about the quarterly performance, latest share price.

NEW YORK (TheStreet) -- Strong trading results drove Morgan Stanley(MS Quote) to a solid third quarter, even as a technical issue cut into profitability.

Morgan Stanley earned $757 million, or 38 cents per share, on revenue of $8.675 billion. Analysts surveyed by Thomson Reuters had predicted a 27 cent profit on revenues of $7 billion for the September quarter. In the second quarter ended June 30, Morgan Stanley lost $159 million, or $1.37 per share.

As has been the case for rivals JPMorgan Chase (JPM Quote)and Goldman Sachs (GS Quote), trading was the big driver of revenues, accounting for $3.24 billion of the total. Investment banking brought in $1.23 billion, reflecting a 74% increase in underwriting revenues compared to last year's third quarter.

Advisory revenues were down, however, which Morgan Stanley attributed to a drop in business activity. Asset management accounted for $2.03 billion in revenues, though Morgan Stanley is selling its Van Kampen mutual fund unit to Invesco (IVZ Quote) which means the retail part of this business will be lost.

Morgan Stanley's results continued to be complicated by a technical issue where profitability was actually hurt by an improvement in the bank's credit spreads. This dynamic reduced earnings per share by 36 cents and subtracted $600 million from fixed income sales and trading revenues, which nonetheless came in at $2.1 billion.

Morgan Stanley took more risk in the third quarter, by at least a couple of measures. Its value at risk (VaR), the amount it can lose in a single trading day, was $168 million, higher than it has been since at least the start of 2008. The fact that this number has increased steadily, however, since the start of 2008 supports the widely-held view that it not a good measure of risk.