The second quarter offered evidence that CEO James Gorman’s turnaround is on track.

Apparently, Morgan Stanley’s rebound is not overhyped.
The investment bank, which teetered on the brink during the financial crisis and stumbled for a while in its aftermath, has recently become a media and Wall Street darling. Shares of Morgan Stanley  MS 0.77%  have been the best performing of the five large Wall Street banks this year. In the past month and a half, both investment weekly Barron’s and the New York Times have written large profiles of Morgan’s CEO James Gorman and the fact that he has led Morgan Stanley down the path toward less risk and more solid success. A few months before that, Fortune reported that one year after Facebook’s mismanaged IPO, Morgan Stanley was doing much better.
On Thursday, Gorman and Morgan Stanley lived up to all that praise.
The company reported earnings for the second three months of the year of $1.8 billion. That was more that double what Morgan Stanley earned a year ago. The earnings, which amounted to $0.60 a share, after some one-time adjustments, were also better than the 0.46 a share analysts had been expecting. Earnings at the other big banks, while better than expected, were mostly down for the quarter. Morgan Stanley is the last of the big banks to report profits for the quarter. On Wednesday, Bank of America  BAC -0.52%  reported that its profits fell 43%, due to higher legal expenses.
Like the other banks, Morgan Stanley’s fixed income trading business had a rocky quarter. Revenue there fell 20%. But that was the one black spot in Morgan’s earnings. And the bank benefitted from the fact that after years of lagging rivals in the area, debt trading is much smaller part of its business than it used to be.
Elsewhere, fees from managing stock and debt deals, as well as advising on mergers, was up from a year ago.
One of the criticisms leveled at Gorman has been that the businesses he is leading Morgan Stanley into — asset management, for example — are less profitable than trading and investment banking, where investment banks have traditionally focused. But Morgan Stanley’s return on equity, a key measure of profitability for Wall Street firms, jumped to 10.9%. That was up from just over 4% a year ago. It also matched the ROE of rival Goldman  GS -0.26% , the first time that has happened in a long time. Both firms are far less profitable than they were before the financial crisis.
And, once again, Morgan Stanley appeared to take fewer risks on its path to higher profits. The company’s so-called value-at-risk measure dropped 21% from a year ago. Goldman’s VAR dropped in the quarter, but not as much. VAR at JPMorgan Chase  JPM -0.31% , which also beat profit expectations, was up slightly this quarter.