(Reuters) - Morgan Stanley MS.N surprised Wall Street on Wednesday by producing a 74 percent jump in quarterly profit on the strength of a business that analysts and investors had for years written off as dead.

The sixth-largest U.S. bank generated $1.7 billion in revenue from bond trading in the first quarter, the most in two years. The figure matched what Morgan Stanley had produced before cutting 25 percent of the business's staff, showing that the bank can do more with less. The bank also delivered more from bond trading than arch rival Goldman Sachs Group Inc GS.N, a rare feat.

“This is quite a number for a company that just two years ago was setting a billion dollars a quarter as an aspirational goal,” said Oppenheimer analyst Chris Kotowski.

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Morgan Stanley’s traders managed to navigate inconsistent trading conditions through the quarter and picked up market share along the way, Chief Executive James Gorman and Chief Financial Officer Jonathan Pruzan said on a conference call with analysts. Performance was particularly good in the Americas region, helped by the Federal Reserve’s decision to raise interest rates in March.

“We ... went through a major restructuring,” said Pruzan, referring to the staff cuts. “We’re now generating significantly more revenues than we had before that restructuring with lower expenses and less people, so the operating leverage in that business has been very good.”

Morgan Stanley shares rose 3 percent to $42.44 in morning trading.

Through Tuesday's close, Morgan Stanley shares had risen about 20 percent since the U.S. presidential election in November, compared with an 18 percent rise in KBW Bank index .BKX.

Morgan Stanley’s bond trading business has been a near-perennial loser in the years following the financial crisis. Gorman outlined a plan in 2012 to severely cut back on the business, which has since gone through several staff reductions and reduced risk-weighted assets by hundreds of billions of dollars.

In its place, Morgan Stanley built out its wealth management division, which Gorman favored for its reliable income stream. But even as the wealth unit consistently hit higher profit targets, Gorman routinely faced questions about the fate of fixed-income trading, which struggled to produce even $1 billion in quarterly revenue for five years.

Eventually, the bank began rebuilding parts of the business, particularly those that had attractive returns under tougher capital requirements enforced after the financial crisis. (reut.rs/11F9aHr)

Analysts described the first quarter as a sign that Morgan Stanley’s fortunes are changing, and Gorman barely hid his delight as they complimented the bank’s performance.

“We are obviously happy with the way the quarter turned out,” he said.

Overall, the bank easily beat expectations, reporting a first-quarter profit of $1.8 billion, or $1 per share, up from $1.1 billion, or 55 cents per share, in the year-ago period. Analysts had expected a profit of 88 cents per share, on average, according to Thomson Reuters I/B/E/S.

Net revenue jumped 25 percent to $9.75 billion, beating the average estimate of $9.27 billion.

Strength in bond trading and other businesses allowed Morgan Stanley to hit a key milestone laid out by Gorman. The bank’s 10.7 percent return on equity was well within the 9 percent to 11 percent target he wanted Morgan Stanley to reach by the end of 2017. That metric is an important one for shareholders because it shows how well a bank is using the capital they provide. Morgan Stanley’s results echoed those reported by peers, with the exception of Goldman Sachs. Other Wall Street banks reported big gains in bond trading, helped by investors adjusting their portfolios in response to interest rate movements, elections in Europe and Britain’s progress in leaving the European Union. Revenue from trading in stocks, in which Morgan Stanley has held No. 1 spot among Wall Street banks, fell slightly to $2 billion from $2.1 billion.