Morgan Stanley beat the average analyst estimate for the second quarter. It reported 95 cents a share vs. the consensus 92 cents a share. So this qualifies, technically, as an upside surprise. Of course 95 cents a share is way down sequentially and year-over-year, but it could have been worse.

The story was pretty much what analysts were expecting. Most of the action was in the institutional securities group. Equity sales and trading were fair to weak, but were propped up in part by strong prime brokerage activity. Fixed income activity was weak across the board, including proprietary trading. Here's a tantalizing disclosure: In the interest rate, credit and currency arena, the loss included "a $120 million negative adjustment to marks previously taken in a trader's book that did not comply with Firm policies." Interesting. Hopefully, we'll hear more about this. In other trading, the company took some losses on hedges, as expected.

Taking a page from Goldman Sachs, Morgan Stanley was able to pad its results with two transactions--the sale of a wealth management unit and proceeds from a follow-on offering of MSCI that brought in $1.4 billion. For more, here's the release.

So what to make of all this? Well, it avoided some massive mines that we would have heard about. Some people may be breathing a bit easier. But once again, it says a lot about the competitive landscape among the bulge bracket. It's hard not to make this about Goldman Sachs, as well as Morgan Stanley. I didn't think that Goldman Sachs could pull off the same earnings magic two years in a row, but so far in 2008 it has separated itself even more from its peers. We once thought of Morgan Stanley and Goldman Sachs as the top two, with Lehman Brothers and others struggling to break in. But Goldman Sachs has taken it to a new level--all alone. Can it continue? You would have to say no. Stay tuned. - Jim