Morgan Stanley beat Wall Street's profit expectations on Wednesday, reporting gains across most of its businesses and producing more trading revenue than rival Goldman Sachs Group Inc, a rare feat.

The sixth-largest U.S. bank by assets reported an 11 per cent rise in second-quarter profit, generating more revenue from giving corporations advice, underwriting securities, trading equities and managing customers' money.

The one dark spot, bond trading, fell 4 percent, much less than at Wall Street rivals that reported earnings in recent days. The US$1.3 billion in revenue from that business topped Chief Executive Officer James Gorman's $1 billion quarterly target and beat Goldman's US$1.2 billion.

Morgan Stanley shares jumped 3.9 per cent to US$46.95 in morning trading.

"We think we've made the right decisions and the results over the last five quarters in a row show we're credible and critically sized" in bond trading, Chief Financial Officer Jonathan Pruzan said in an interview.

The bank has also chosen Frankfurt to be a new base for its European Union operations as Britain prepares to leave the bloc, according to a source familiar with the matter, becoming the latest U.S. bank to pick the German city.

International banks are planning to set up subsidiaries in the EU to ensure they can continue to serve clients if their London operations lose the ability to operate in the EU after Britain leaves in March 2019.

Morgan Stanley is planning to use its Frankfurt subsidiary as the center for its EU trading operations, according to the source.

"That means 200 new people will be coming to Frankfurt," the source said.

For years, Morgan Stanley struggled to convince Wall Street that its plan to remain a major player in trading while growing wealth management was going to succeed. Its results were choppy following the 2007-2009 financial crisis, and it took time for pieces of Gorman's plan to fall into place.

But lately the bank has been hitting or exceeding targets Gorman laid out.

It was the fifth quarter in which Morgan Stanley hit Gorman's bond trading revenue goal and the second straight quarter that it surpassed Goldman's trading revenue.

Morgan Stanley's 4 percent revenue dip in that business compares with a 40 per cent drop at Goldman and declines of 6 percent to 19 per cent at Citigroup Inc, Bank of America Corp and JPMorgan Chase & Co.

Asked by an analyst whether he would lift his revenue target in light of recent performance, Gorman said no. Morgan Stanley needs to generate at least $1 billion in revenue, he said, simply to prove that expenses and capital related to the business are justified.

Morgan Stanley cut its bond trading staff by 25 per cent last year, after having reduced risk-weighted assets by hundreds of billions of dollars. It has also been trying to get customers from other businesses to rout trading through the securities unit.

The difficult trading environment during the second quarter, with low volatility and sporadic blips of client activity, was a "robust test" of Morgan Stanley's strategy, Gorman said.

"With the firm now on solid footing, performance could still materially improve in the years ahead, assuming constructive markets," said the 59-year-old CEO, who has been in charge of the bank for more than seven years.

Morgan Stanley's overall trading revenue fell a more modest 2 per cent to US$3.2 billion due to a small gain in equities trading, where it is has a strong franchise. Goldman's trading revenue was US$3.1 billion.

Morgan Stanley's wealth management business logged its best quarter on record. Revenue rose to US$4.2 billion, up 9 per cent from the year-ago quarter, and its profit margin hit 25 per cent, at the high end of Gorman's targeted range.

Investment management, Morgan Stanley's smallest business, reported a 14 per cent rise in revenue to US$665 million.

The bank's 9.1 per cent return on equity, a measure of profitability, was within the 9 per cent to 11 per cent target Gorman set out to hit by the end of 2017. It was higher than Goldman's 8.7 per cent return during the same period.

Morgan Stanley and Goldman Sachs have long been fierce rivals in many businesses, but it has been rare for Morgan Stanley to beat Goldman in trading or be broadly more profitable.

Across Morgan Stanley, second-quarter profit rose to US$1.6 billion, or 87 cents per share, from US$1.4 billion, or 75 cents per share, in the same period last year.

Analysts expected earnings of 76 cents per share, on average, according to Thomson Reuters I/B/E/S.

Its revenue rose 7 per cent to US$9.5 billion, compared with an average estimate of US$9.1 billion.

Wall Street cheered the results as Morgan Stanley's stock climbed.

"Love it when a plan comes together," Evercore ISI analyst Glenn Schorr wrote in a note to clients.

Through Tuesday's close, Morgan Stanley's shares had gained about 6.8 per cent this year, outpacing a 4.2 per cent rise in the KBW Bank index.