Morgan Stanley is outrunning archrival Goldman Sachs as 2009's busiest adviser on mergers as optimism grows that the crippling effects of the financial crisis on dealmaking may be easing.

Morgan's strong showing under new merger chief Robert Kindler not only spells prestige and fees, but marks a rebound for the bank after it fell to fifth position in 2008.

I'm having fun, says Kindler, a former Wall Street lawyer who joined Morgan Stanley three years ago from JPMorgan .

Morgan has overtaken Goldman as the top-ranked adviser for both global and U.S. mergers and acquisitions, working on deals worth $490.9 billion so far this year, as global M&A plummeted 41 percent to $1.392 trillion.

( For a graphic displaying the top 10 rankings, click on http://graphics.thomsonreuters.com/099/GLB_INBMA0909.gif)

Kindler told Reuters it was way too early to call the bottom of the M&A market but said he saw promising signs.

The two things that are most encouraging is that (strategic buyers) are back doing deals that make industrial sense and the credit markets are back open. That's very good for M&A. The negative is that we have a volatile equity market, he said in a telephone interview.

The value of deals totaled $369.3 billion in the third quarter, down 54 percent compared to the same quarter in 2008, according to Thomson Reuters data.

For the year to date, fees for completed deals fell an estimated 57 percent to $11.9 billion.

(For a graphic displaying fee rankings, click on http://graphics.thomsonreuters.com/099/GLB_INBFS0909.gif)

European M&A in the year to date has more than halved to $433.8 billion -- worse than U.S. and Asian declines of 43 and 38 percent respectively.

While the top spot in the M&A league tables is a highly sought-after position, Morgan Stanley still trails Goldman in perhaps the most important metric -- earnings.

Morgan has posted two quarterly losses this year and has lagged far behind Goldman, which has stepped up its risk-taking and was rewarded with blowout trading results.

Analysts expect Morgan Stanley to post a small loss in 2009, while Goldman is expected post net earnings of about $8.5 billion, according to Reuters Estimates.

BACK ON TOP

If Morgan Stanley can maintain its lead until the end of the year, it will top the tables for the first time since 1996, based on Thomson Reuters data.

That would mark a decisive recovery from 2008, when the bank fell to fifth in the rankings and the demise of Lehman Brothers and fire sales of Bear Stearns and Merrill Lynch cast doubt over the viability of standalone investment banks.

Scott Moeller, who heads the M&A Research Center at Cass Business School in London, said Morgan would have been keen to improve its ranking because M&A advice gives banks access to top executives and can lead to a lot of follow-up fees.

It's very important from Morgan Stanley's perspective that last year be perceived as a fluke and not a trend, and this year's results so far seem to prove that, said Moeller, who worked at Morgan Stanley for more than a decade.

From 2005 to 2007, Morgan ranked second behind Goldman. It suffered last year partly because it did not advise on the $113 billion spinoff of cigarette-maker Philip Morris.

This year, it has worked on seven of the top 10 deals, including two drug industry mega-mergers -- Wyeth and Pfizer
, and Schering-Plough and Merck -- a joint venture between miners Rio Tinto and BHP Billiton , and the restructuring of General Motors .

Kindler, who took the helm in February after the death of predecessor Gavin MacDonald, said the most notable trend was that a handful of top firms were consolidating market share.

We've basically maintained our M&A strength, he said. Success in M&A is really the result of many, many years of consistent client coverage.

HEALTHIER ENVIRONMENT

Bankers and analysts have hailed a clutch of recent deals as evidence that long-mothballed strategic plans are back, as executives regain some confidence, financing and capital markets recover, and the economic gloom lifts. [ID:nLA188442]

This year has been a tough one both in terms of volumes and revenue, but I'm quite convinced that 2009 will be the trough of this M&A cycle, said Brett Olsher, co-head of global M&A at Deutsche Bank, which ranks No. 5 for the year to date.

Olsher said Kraft Food Inc's $16 billion tilt at UK chocolate-maker Cadbury Plc epitomized the market shift.

It's highly strategic and cross-border, with a consideration mixture of cash and shares. It has a number of elements that suggest we are entering a more interesting and healthier M&A environment, Olsher said.

Deutsche is one of seven financial advisers on the deal.

Even private equity firms, starved of the cheap debt that fueled boom-year deals and burdened by ailing companies in their portfolios, are showing some signs of life.

Firms such as Kohlberg Kravis Roberts & Co were responsible for a fifth of all takeovers in 2006 but just 3.2 percent so far this year.

Still, four of 2009's five largest deals by buyout houses took place in this quarter, including the CVC-backed approach to British transport company National Express Group Plc and eBay Inc's planned sale of a stake in Skype to an investor group.

Morgan Stanley's Kindler said private equity firms would probably look at spin-offs, buyouts of sub-$5 billion companies, and highly structured financings.

I think it's going to be a while until we see deals of size from private equity. But they are still going to be very active, he said.

(Editing by Ted Kerr)