Morgan Stanley became the third US investment bank this week to beat analysts forecasts after announcing a 42 per cent fall in its first quarter profits to $1.55 billion (£777.9 million).

The group’s results for the three months ended February 29, 2008, were dragged down by $2.3 billion in writedowns relating to mortgages and leveraged loans used to finance private equity buyouts.

However, a 51 per cent jump in equity sales and trading revenues, to a record $3.3 billion, ensured that Morgan Stanley’s first-quarter net income of $1.45-a-share was ahead of the $1.01-a-share consensus analyst forecast.

The group’s revenues for the period fell by 17 per cent to $8.3 billion.

Morgan Stanley’s financials were published a day after Goldman Sachs and Lehman Brothers reported better-than-expected first-quarter profits giving Wall Street hope that the outlook for banks might not be as dire as it seemed at the beginning of the week.

Morgan Stanley’s fixed-income sales and trading revenues fell by 15 per cent to $2.9 billion. Investment banking revenues dropped by 10 per cent to $1.1 billion, despite a 19 per cent rise in fees for takeover advice.

Revenue at the global wealth-management unit increased by 6 per cent to $1.6 billion.Shares in Morgan Stanley rose by $3 to $45.86 in early trading. The Dow Jones industrial average was 7.7 points down at 12,338.50 by early afternoon.

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