After a booming underwriting season,

Morgan Stanley Dean Witter

( MWD) Monday reported an 86% rise in earnings that surpassed Wall Street's expectations by almost 90 cents a share.

For the first quarter ended Nov. 30, the New York City-based investment bank reported earnings of $1.63 billion, or $2.84 a diluted share, on revenues of $5.66 billion. For the year-ago quarter, earnings were $879 million, or $1.49 a diluted share, on revenues of $3.97 billion.

Analysts polled by

First Call/Thomson Financial

had predicted earnings of $1.96 a diluted share.

Earnings for the fiscal year were $4.79 billion, or $8.20 a diluted share, on revenues of $22 billion. Last year, the company earned $3.05 billion, or $4.95 a diluted share, on revenues of $16.44 billion.

Analysts had predicted $7.31 a diluted share for the year.

Investors did not seem quite as surprised as analysts. Shares of Morgan Stanley rose 1 13/16, or 1%, to 129 7/8 in midday trading. (Morgan closed up 7/8, or 1%, to 128 15/16.) But they had already gained more than 30% since the company paid a 24-cent dividend on Oct. 13.

"I guess it just means we're bad guessers," said David Berry, analyst for

Keefe, Bruyette & Woods

. The firm hasn't done underwriting for Morgan Stanley. Keefe does not have a formal rating on Morgan Stanley. "The world at large knew their business was strong."

While divisions like credit services, which markets the

Discover

card, did not slump, analysts agreed the runaway success was driven by investment banking, particularly underwriting technology offerings.

In the fourth quarter alone, the firm handled the initial public offerings for

Agilent

(A) - Get Report

,

Freemarkets

( FMKT) and

Martha Stewart Living Omnimedia

(MSO)

, as well as

United Parcel Service

(UPS) - Get Report

, which made one of the largest and most eagerly awaited IPOs ever.

A company spokeswoman said she could not confirm whether revenues from those jobs were booked to the fourth quarter.

Morgan Stanley and

Goldman Sachs

(GS) - Get Report

lead the technology underwriting sector, and both are also at the forefront of the European merger and acquisition business. As overseas industries -- including, notably, telecommunications -- consolidate and shift toward American business models, European companies are looking to American bankers for advice.

The quarter's results demonstrate that "the big companies are getting bigger; business outside the U.S. is continuing to grow," said Joan Solotar, analyst for

Donaldson, Lufkin & Jenrette Securities

, which hasn't done underwriting for Morgan Stanley. Solotar rates the stock a market perform, the equivalent of hold.

The firms that dominate overseas merger advice will outperform competitors that work only in the U.S., she added.

Compensation and benefits, as a percentage of revenue, came to only 23% for the fourth quarter, compared to 31% last year. The company typically crams the majority of its bankers' bonuses into the earlier quarters, but the rewards this quarter were still surprising low compared to revenue patterns, Berry said.

Morgan Stanley tiptoed further into online brokerage services during the quarter by setting up

i

choice, but analysts said its online trading business was too new to have much impact on the company's earnings.

"I imagine you'll see marketing spending stepping up in the first quarter," Solotar said.

The asset management division earned $118 million, 24% better than in the year-earlier quarter, as assets under management and administration rose $10 billion, to $425 billion.

The company also declared a 2-for-1 stock split late next month to shareholders of record as of Jan. 12.

During the year, Morgan Stanley repurchased around 25 million shares of its own stock, the firm said.

"This is about as good as it gets for this industry this quarter, although stand back for Goldman Sachs," Berry said.

Goldman, which is expected to report fourth-quarter earnings Tuesday, has also had a strong recent stock performance, rising from 61 13/16 after paying a 12-cent dividend on Oct. 12 to open at 82 Monday. At midday, Goldman was up 2 9/16, or 3%, to 82 3/4. (Goldman finished up 15/16, or 1%, to 81 1/8.)

The financial industry had expected a dismal fourth quarter as investors, wary of much-hyped computer bugs, were expected to shy from the markets.

"The expected slowdown heading toward the millennium didn't happen," Solotar said.