Goldman Sachs Group Inc. (GS) Financial News - How Morgan Stanley Bucked a Trend in Trading
Goldman Sachs Group Inc. (GS)
How Morgan Stanley Bucked a Trend in Trading
2010-07-22 06:37:14
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Quote: In contrast, its main competitors, Goldman Sachs and JPMorgan Chase, experienced 35 percent declines in trading revenue in the same period.
A combination of structure, strategy and market share gains seems to be benefiting Morgan Stanley, giving the firm something to smile about for the first time in a while.
First, Morgan Stanley does not seem to have experienced the big drop-off in trading volumes that affected its rivals. The sovereign debt crisis in Europe sent the markets into a tailspin in the spring, prompting investors to sit on the sidelines and wait for the all-clear signal. This drop-off in volume meant less money for banks’ trading desks, leading to lower fee income.
One way to look at trading volumes is a bank’s value at risk, or VAR. For example, Goldman’s VAR for the second quarter was down 15 percent from the first quarter, to $136 million, suggesting that the firm took on less risk because it was executing fewer trades. In contrast, Morgan Stanley reported only a 2.7 percent drop in VAR from the second quarter, to $139 million, suggesting that its client volumes were off just slightly.
Also, Morgan Stanley says its client volume held up in part because of its expanded trading sales force. The firm announced last year that it was hiring 400 salesmen in an effort to take market share from rivals. That might partly explain how Morgan Stanley was able to post strong gains in its equity trading unit, beating Goldman Sachs in this area for the first time in ages. (Most of the declines in Morgan Stanley’s trading revenue came from fixed income.)
And unlike rivals including Goldman, JPMorgan and Bank of America, Morgan Stanley has shuttered large parts of its proprietary trading business, leaving it less vulnerable to turmoil in the market. Proprietary trading, or playing the markets with the firm’s own money, can produce huge profits, as it di...Open whole article (external link)