NEW YORK (BLOOMBERG) - Morgan Stanley reported US$908 million (S$1.3 billion) in fourth-quarter profit and a revenue gain that exceeded analysts' estimates as equity trading rose and expenses fell. The firm said it failed to meet its goals for revamping the fixed-income business.

Net income was US$908 million, or 39 US cents a share, compared with a loss of US$1.6 billion, or 91 US cents, a year earlier, when the firm booked costs tied to litigation over mortgage-related matters, the New York-based company said Tuesday in a statement. Excluding accounting adjustments, earnings were 43 US cents a share, beating the 32-cent average estimate of analysts surveyed by Bloomberg.

Chief Executive Officer James Gorman, 57, is attempting to strike the right balance in Morgan Stanley's bond-trading business amid the industry's years-long slide in revenue. The firm said last month that it was taking a US$150 million severance charge as it pared its fixed-income trading business. The cuts affected 1,200 employees, including about a quarter of its fixed-income trading staff, a person briefed on the matter said.

"A strong overall performance in the first half of the year was impacted by difficult market conditions in the second half that dampened trading activity," Mr Gorman said in the statement. "In the fourth quarter, we took action to meaningfully restructure our fixed-income business on a capital and expense basis."

The firm set a target for return on equity of 9 per cent to 11 per cent for 2017, compared with Mr Gorman's longstanding goal of at least 10 percent. Last year's ROE was 7 per cent, excluding accounting adjustments and a tax benefit.

Morgan Stanley climbed 3.4 per cent to US$26.85 at 7:11 a.m. in New York. The shares had tumbled 18 per cent this year through Friday, trailing the 10 percent decline for the 88-company Standard & Poor's 500 Financials Index. Societe Generale SA downgraded the investment bank to sell last week, citing lowered expectations for trading revenue.