Morgan Stanley beats earnings estimates

• Revenue up 50%25 to %247.9 billion
• Adjusted earnings were %241 billion or 50 cents a share
• Wealth management unit%27s profit doubled to %24668 million pretax

Morgan Stanley said its third-quarter profits touched $1 billion, beating analyst estimates, as the smallest of the nation's six so-called megabanks saw gains in investment management, stock trading and investment banking offset a big drop in bond trading.

Income from continuing operations was $888 million, or 44 cents a share, compared with a $1 billion loss a year ago. Analysts had expected Morgan Stanley to earn 40 cents a share on revenue of $7.05 billion. Reported revenue was $7.9 billion, up from $5.3 billion last year, when the top line took a $2.3 billion accounting charge reflecting changes in the value of the bank's derivatives positions.

Morgan is benefiting from a strategy to focus on less-risky businesses, including the Morgan Stanley Smith Barney stock brokerage and mutual fund unit, CEO James Gorman said. Third-quarter profit in that division more than doubled, reaching $668 million before taxes, after Morgan bought out Citigroup's minority interest in the business. That strategy and improving economic prospects are helping Morgan Stanley, chief financial officer Ruth Porat said.

``The impasse in Washington has been an unfortunate tax on the economy,'' Porat said on a conference call. But signs of confidence are accumulating, including a backlog of clients interested in executing mergers and initial public offerings, she added. ``We expect the economy to resume the pace it was on.''

Morgan also used a similar formula to the one its rival Goldman Sachs used to bolster third-quarter profit: Contain compensation expense to help offset the effects of the slowdown in bond trading. Compensation expenses were virtually the same as last year, pushing the percentage of adjusted revenue spent on pay and benefits to 49% of revenue, down three percentage points from last year.

Excluding a new derivatives-related accounting adjustment, Morgan Stanley's third-quarter 2013 revenues were $8.1 billion, and earnings per share from continuing operations were 50 cents.

The firm's investment advisory business, its largest reporting unit, posted mixed results. Bond trading revenue fell to $835 million from $1.5 billion, offset by a boost in stock trading and gains on investments in an insurance broker and an investment banking joint venture in Japan.

And the company's investment management business saw earnings rise more than 50%, to $300 million before taxes, as an improving commercial real estate market boosted the value of some of its holdings.

Shares of Morgan Stanley rose 76 cents, or 2.6% to $29.69 in New York Stock Exchange composite trading.