Morgan Stanley (MS) Surprises Wall Street With a Solid Beat

Shares of Morgan Stanley (NYSE: MS) are down 1% in after-hours trading Tuesday after reporting better-than-expected Q3 results after the close. Morgan Stanley's quarterly report was released a day early due to the recent turmoil in the market following the collapse of rival Lehman Brothers (NYSE: LEH) and the quick sale of Merrill Lynch (NYSE: MER). Shares of Morgan Stanley have seen extreme volatility since the news. In addtion, credit default swaps for Morgan Stanley have been on the rise, indicating heightened risk.

Surprising investors, Morgan Stanley reported EPS of $1.32, well above the analyst estimate of $0.78. Revenues for the quarter were $8 billion, also well above the consensus of $6.32 billion.

Morgan Stanley dispelled rumors the company would merge with a depositary institution, saying the broker-dealer model works. Some analysts have suggested a merger with a deposit bank would provide better liquidity to Morgan, one of the two remaining large independent investment banks (the other is Goldman Sachs).

Morgan Stanley CFO Thomas Kelleher acknowledged that this is the most challenging market environment they have seen, but they see opportunity to invest, gain clients and market share.

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