After announcing earnings at 10 a.m. on Friday, Morgan Stanley's (NYSE:MS) stock shot up 6% six minutes later. Investors looking for the reason behind that move don't have to look any further than the dropped jaws of Wall Street analysts. By beating analyst estimates, Morgan Stanley has made it known that the firm is back in the game.

How'd they do that?
Morgan Stanley has finished cleaning house, rebuilding, and is now happy to just run its business, according to CEO James Gorman, and the fourth quarter was the company's pivot point. Its increased focus on building its wealth management division has paid off in spades, with pre-tax income more than doubling since 2011 to $581 million. This improvement is based on a relatively modest increase in revenue to $3.5 billion from $3.2 billion in the fourth quarter of 2012. But what's really impressive is the segment's net margin of 17%, up from 7% in the third quarter of 2012 and the fourth quarter of 2011.

Morgan Stanley's Institutional Securities division also got a boost during the fourth quarter, with advisory, equity underwriting, and fixed-income underwriting revenues all growing because of higher market activity. Fixed-income and commodities sales and trading was up year over year, but at $811 million in revenue, the segment is down 44% since the third quarter's $1.5 billion. In comparison to its rivals, Morgan Stanley appears to be the weakest in this market:

Company

FI Revenue Q4 2012

FI Revenue Q3 2012

% Change

FI Revenue Q4 2011

% Change

Morgan Stanley

811

1458

-44%

(493)

265%

Citigroup (NYSE:C)

2710

3697

-27%

1716

58%

Goldman Sachs (NYSE:GS)

2038

2224

-8%

1363

50%

JPMorgan (NYSE:JPM)

3177

(549)

679%

551

477%

Source: Company Q4 2012 press releases; All numbers in millions and exclude DVA/CVA.

JPMorgan and Goldman are the two juggernauts in fixed income, with JPMorgan going gangbusters in the fourth quarter on all accounts. Morgan Stanley, on the other hand, announced a plan to cut its fixed-income segment prior to its earnings release. It will continue to operate in the fixed-income market, albeit with a smaller operation as Gorman aims at cutting the capital needed to operate the trading in half by 2016.

Moving forward
So, Morgan Stanley had a better-than-expected quarter, but can they keep up the momentum? Most signs point to yes. With the company's increased focus on its wealth management segment, reductions in fixed income, and genuinely thought-out cost cutting initiatives, it seems to have all of its ducks in a row. By focusing on wealth management, the company can produce greater revenue without having to risk as much capital -- something that will be helpful moving forward with tougher regulations.

Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Citigroup and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.