Morgan Stanley surpassed analysts’ expectations when it reported its second quarter results Wednesday, but its chief executive officer warned it expects a rough road ahead.

The company’s wealth management group reported revenues of $3.1 billion in the second quarter, up from $1.9 billion a year ago. The increase was primarily due to the closing of the Morgan Stanley Smith Barney transaction, which was partly offset by the effect of weaker market conditions.

Revenue in the asset management business rose to $410 million from $358 million.

“While markets were challenging this quarter, Morgan Stanley benefited from a deliberate and disciplined focus on execution. We strengthened leading market positions in our client-focused Investment Banking business, improved client flows in Sales and Trading, and continued progress on the integration of Morgan Stanley Smith Barney as well as the repositioning of our Asset Management business,” said James P. Gorman, President and Chief Executive Officer, in a press release. “We still have a great deal of work to do across our global franchise and anticipate that the difficult market environment may continue in the months ahead. That said, we believe that regulatory reforms are a key step toward restoring trust in the industry and the markets.”

Earnings from continuing operations in the three months through June were $1.46 billion, or 80 cents a share, up from a loss of $138 million, or $1.36 a share, a year ago. Revenue was $7.95 billion, a 53% increase from the quarter a year ago. Analysts forecast earnings of about 46 cents a share on revenue of $7.93 billion.

Morgan Stanley [MS] curtailed its trading activities in 2009 after losses during the financial meltdown. That meant that instead of profiting from trading like rivals JP Morgan and Goldman Sachs, the firm missed out.

In the first quarter Morgan Stanley jumped back on the trading bandwagon, beating analysts’ estimates with sales and trading net revenue soaring 51.9% to $4.1 billion. The company continued its trading surge in the second quarter.

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