Morgan Stanley reported a fourth-quarter profit on a surge in equity sales and trading and strong margins at its wealth management business, sending its shares up 7 per cent before the
bell.

The investment bank reported income from continuing operations of $573 million, or 28 cents per share, compared with a loss of $222 million, or 13 cents per share, a year earlier.

Revenue from sales and trading rose 43 percent to nearly $3 billion. Wealth management business grew 8 percent to $3.5 billion.

"Our firm is now poised to reach the returns of which it is capable on behalf of our shareholders," chief executive James Gorman said in a statement.

Compensation expense, typically the biggest cost for Wall Street firms, fell 5 per cent to $3.6 billion in the fourth quarter from a year earlier.

The company set aside 44 per cent of adjusted revenue in its institutional securities business for compensation last year, down from 53 per cent in 2011, chief financial Ruth Porat said in an interview today.

The investment bank reduced staff levels by 7 per cent last year and is in the process of eliminating another 1,600 jobs in institutional securities and related support functions.

Morgan Stanley also told employees this week that it would defer 100 percent of 2012 bonuses for anyone earning at least $350,000 a year and due a bonus of at least a $50,000. Financial advisers in the wealth management business are not affected by the deferral program.

Ms Porat told Reuters that less than 20 per cent of the bank's staff would be affected by the deferrals, and that the policy targets mainly senior employees.

Rival Goldman Sachs said on Wednesday it cut compensation costs 11 per cent in the fourth quarter, helping boost return to shareholders.

Reuters