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The firm's $91 million loss, on weak volumes during one of the most difficult trading quarters in recent memory, came a day after Goldman overcame those same conditions to beat Street estimates with a $1.9 billion profit.

Morgan Stanley shares fell 1.5 percent in premarket trading on Wednesday, while Goldman shares were higher.

"Morgan Stanley is a caterpillar in metamorphosis. It's either going to turn into a beautiful butterfly or get eaten by a robin," said Brad Hintz, an analyst with Sanford C. Bernstein.

"You could look ahead and say I'm going to like the future Morgan better than I'm going to like the future Goldman, but you're still going to have a period that's pretty rough on the stock."

Morgan Stanley has been playing catch-up with its arch-rival since the financial crisis. In 2009, Goldman cashed in on windfall trading opportunities to report a record annual profit, while Morgan Stanley, which had scaled back risk, reported a loss.

The leading investment banks have gone in different directions since the financial crisis, with Morgan Stanley rebalancing its businesses to include the largest retail brokerage and Goldman sticking to its banking and trading roots.

Analysts say Morgan Stanley still has more work ahead in that transition -- and it will never beat Goldman on traditional trading.

"Morgan Stanley has done an adequate job in these terrible markets of not performing very badly. But when you're competing against Goldman Sachs and there's a contrast, most times you're going to look bad, and this is one of those times," said Mike Holland, founder of Holland & Co in New York, which oversees more than $4 billion of assets.

Morgan Stanley said third-quarter income from continuing operations was 5 cents a share. Analysts' average forecast was 15 cents, according to Thomson Reuters I/B/E/S.

Fixed income sales and trading revenues were $846 million, down 57 percent from a year earlier.

The bank reported a net loss applicable to shareholders of $91 million, compared with a profit of $498 million a year earlier.

Morgan Stanley said its results reflected a writedown of $229 million related to Revel Entertainment Group, a troubled hotel and casino project in Atlantic City, New Jersey.

Its global wealth management business did not offer much relief, reporting net revenues of $3.1 billion, up just 1 percent from a year earlier. [ID:nN20246987] Morgan Stanley said lower levels of client activity weighed on its retail brokerage results.

The firm also announced it was restructuring its ownership of FrontPoint Partners LLC, its hedge fund unit. Morgan Stanley will retain a minority ownership in FrontPoint.

Morgan Stanley shares were down 37 cents, or 1.5 percent, to $25.02 in premarket trade.

(Reporting by Steve Eder; additional reporting by Maria Aspan; editing by John Wallace)