Morgan Stanley Posts Strong Profit On Trading Growth (Update 3)

Other headwinds for Morgan Stanley also remain, including its relatively high compensation to revenue ratio which was expected to be over 50% of adjusted revenue - higher than peers like JPMorgan, Goldman Sachs and Bank of America(BAC) . While Morgan Stanley's compensation expense actually fell below 50% of adjusted revenue, the number increased 3% from 2011 levels and remains higher than its peers on deferred pay and high fixed compensation in its wealth management unit.

"The good report came on a better performance on both revenues and expenses," said Oppenheimer analyst Chris Kotowski in a note to clients. Morgan Stanley also reported smaller than expected non-compensation expense of $2.3 billion, to keep its overall quarterly pay and benefit expense at $4.43 billion.

Overall, Morgan Stanley entered first quarter earnings with many expecting the firm to show weak revenue and higher than industry average expense. While it was the former where the firm impressed the most, earnings signaled that a multi-year strategy carried out by CEO Gorman is starting to gain traction. "Although we are cautious regarding the sustainability of the FICC results, MS continues to deliver on equities. In addition, this was the second quarter in a row that MS beat us on non-comp expenses," noted David Konrad of KBW.

In the second quarter, Gorman will also have Wall Street and Silicon Valley's eye when Morgan Stanley leads the initial public offering of Facebook, which is expected later this spring.

For more on investment banking earnings, see Bank of America's earnings beat.

-- Written by Antoine Gara in New York.