NEW YORK (CNN/Money) - Bear Stearns & Co. posted much better-than-expected fiscal second-quarter earnings Wednesday on an unexpected gain in revenue, while competitor Morgan Stanley met forecasts for lower earnings despite a $1 billion drop in revenue that was steeper than expected.

The quarter basically has been seen as a difficult one for Wall Street, as a decline in the market and continued weakness in mergers and initial public offerings hurt firms' results. Firms' stocks have also been under pressure from questions raised about the validity of analysts' forecasts following action against leader Merrill Lynch & Co. by New York State Attorney General Eliot Spitzer.

Tuesday Lehman Brothers became the first of four major brokers to report results for the period as it posted lower earnings for the sixth straight quarter, although it managed to edge forecasts.

Bear Stearns bucked the industry trend of lower results in a major way, earning $1.55 a diluted share, excluding the effect of a merchant banking gain, in the period ended May 31, up from $169.5 million, or $1.18 a share, a year earlier. Analysts surveyed by earnings tracker First Call had a consensus earnings per share forecast of $1.20 for the period, with a range of $1.00 to $1.33.

Including the merchant banking gain, Bear Stearns posted net income of $342.9 million, or $2.59 a diluted share. The company credited cost-cutting efforts for the improved results.

"Given the challenging operating environment this effort has served us particularly well," said a statement from Bear Stearns CEO James Cayne.

Net revenue, which excludes interest expense, fell to $1.35 billion from $1.37 billion, but that also easily beat First Call's forecast of $1.2 billion. The company cited extremely strong performance from its mortgage, distressed and municipal bond areas, as well as quarter-to-quarter revenue gains from its investment banking and equity related businesses.

Earlier this week some analysts had suggested that brokerage firms' battered stocks might be ready for a rebound, and shares of Bear Stearns (BSC: down $0.25 to $61.70, Research, Estimates) gained in early trading Wednesday. But shares of Morgan Stanley (MWD: down $1.15 to $44.05, Research, Estimates) lost about 3 percent in early trading.

Morgan Stanley, whose business includes the Discover credit card, earned $797 million, or 72 cents a diluted share, in the quarter ended May 31. That was in line with the First Call forecast and down from the $930 million, or 82 cents a share, it earned a year earlier, marking the seventh consecutive quarter it posted a drop in earnings.

While the company saw improved results from its credit services and investment management units, income from securities, its key area, fell 27 percent to $460 million.

Net revenue, which excludes interest expenses, fell to $5 billion from $6 billion a year earlier, missing First Call's forecast of $5.3 billion. All three units saw a decline in revenue, but the firm's securities business again took the biggest hit, with net revenue there falling 21 percent to $3.5 billion.