Morgan Stanley’s unlikely rebound continues by Stephen Gandel @FortuneMagazine April 17, 2014, 3:31 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons Sitting pretty: Morgan Stanley CEO James Gorman FORTUNE — James Gorman appears to have found Wall Street’s secret sauce. In a quarter when nearly all of its rivals struggled, Morgan Stanley MS reported better-than-expected earnings for the first three months of the year. Profits from continuing operations rose to $1.39 billion, up from $1.18 billion a year ago. Analysts had expected the company to earn $1.22 billion. Even more impressive, revenue from bond trading at Morgan Stanley rose 9%. That same business line at Goldman Sachs GS was down 11%. And most of the rest of Wall Street saw double-digit drops. MORE: Morgan Stanley’s CEO gets a 100% raise A few years ago, Morgan Stanley was basically left for dead. Critics said the bank couldn’t compete with JPMorgan Chase JPM and Bank of America BAC , both of which got bigger in the financial crisis. Nonetheless, Morgan Stanley still had its lead in doing stock deals, particularly in the tech sector. Then came the bungled Facebook FB IPO, and the bank seemed like a goner. Gorman’s early 2009 acquisition of Citigroup’s retail brokerage business Smith Barney has added stability to its operations, and the firm has been able to take back market share in its trading business. That being said, the Smith Barney acquisition has tied Morgan Stanley’s fortunes with the prospects of average retail investors, who tend to take a while to react to changes in the market. So, perhaps, it’s not surprising that the firm would still be doing well after last year’s huge run-up in stock prices. But this year has been rockier for the market. If stocks continue to disappoint, Gorman’s acquisition might not look so hot. What’s more, Morgan Stanley’s bond business had lagged the rest of the Street. So it’s perhaps not as surprising that the bank would see a bounce back. Also, a healthy percentage of the jump in trading revenue came from Morgan Stanley’s commodities business, which regulators may soon force banks to scale back. And Morgan Stanley’s return on equity, a key profitability metric on Wall Street, is still only 8.5%, lower than its rivals and far lower than the double-digit rates the bank used to report before the financial crisis. Gorman will have to show that investors are willing to pay up for lower margins but more stable Wall Street businesses. Still, these aren’t concerns anyone will worry about today. Morgan Stanley’s shares are up 45% from last year, nearly 5% on the good earnings alone. Morgan Stanley is not dead.