Morgan Stanley’s earnings top estimates

Morgan Stanley posted a 60% jump in quarterly earnings Wednesday, beating expectations with record results boosted by strong debt and equity trading. Its shares gained $5.22 to $81.33.

“This was an astounding trading quarter. They must have been beautifully positioned for the sub-prime meltdown and long volatility when equity markets tumbled,” said Sanford Bernstein analyst Brad Hintz.

Morgan last year acquired sub-prime lender Saxon Capital, expanded mortgage lending activities and recently extended financing to New Century Financial Corp. , a sub-prime lender on the brink of bankruptcy.

Still, Chief Financial Officer David Sidwell said Morgan Stanley “made money” in mortgages during the quarter, a period of exceptional returns for stock, debt and derivatives traders.

“We saw good trading opportunities for most of the quarter, and we managed to do well in getting extremely good returns,” Sidwell said. Toward the end of the first quarter, “we felt the markets were getting too frothy, so we brought our risk levels down.”

Sidwell said warehouse commitments -- credit lines that finance lenders’ sub-prime mortgages -- totaled $5.2 billion, of which $2.3 billion was funded and backed by collateral. The bank’s current funded balance with New Century is $2.5 billion.

Sidwell said the bank remained optimistic that problems in the sub-prime markets wouldn’t spread as investors had feared.

“We believe this could be a reasonably limited event, as we have not seen any signs that the sub-prime deterioration has spread to other parts of the market,” he said.