Morgan Stanley, the sixth-largest U.S. bank by assets, reported its first profit in a year, surpassing analysts’ estimates on higher investment-banking fees.

Third-quarter earnings fell to $757 million, or 38 cents per share, from $7.7 billion, or $6.97, a year earlier, the New York-based company said Wednesday in a statement. The average estimate of 21 analysts surveyed by Bloomberg was for earnings per share of 30 cents, with predictions ranging from 11 cents to 56 cents.

Chairman and Chief Executive Officer John Mack, who plans to hand off his CEO duties to Co-President James Gorman at the end of the year, has expanded the company’s retail brokerage unit and hired traders to help recover from the worst losses in the firm’s history. The stock, which has more than doubled this year, is still below where it traded in September 2008 before Lehman Brothers Holdings went bankrupt.

“There will be a general sigh of relief,” said Douglas Ciocca, a managing director at Renaissance Financial in Leawood, Kansas, which manages $1.9 billion. “Building their foundation on a firmer footing is taking a little bit more time” than for Goldman Sachs Group, Ciocca said.

Morgan Stanley, which had reported per-share losses for three straight quarters before Wednesday, gained 103 percent in New York Stock Exchange composite trading this year through Tuesday, when it closed at $32.52.

“Bread-and-butter banking is still kind of unclear, but capital markets seems to be relatively strong,” said Kenneth Crawford, a senior portfolio manager at Argent Capital Management in St. Louis, which oversees about $800 million.

Morgan Stanley agreed this week to sell its retail investment-management business, including the Van Kampen funds acquired in 1996, to Invesco for $1.5 billion in cash and stock, giving the bank a 9.4 percent stake in Atlanta-based Invesco.

The transaction, which is expected to close in mid-2010, will leave Morgan Stanley’s fund unit to focus on managing hedge funds, funds of funds, real estate, private equity and infrastructure funds, as well as long-only funds managed for institutional clients.

“We think this is the right move” for Morgan Stanley, Glenn Schorr, an analyst at UBS in New York, wrote in a note to investors. Schorr said a focus on institutional asset management and the rest of the franchise is the “best use” of management’s time