By Jason Theodorou
Morgan Stanley surpassed rival Goldman Sachs Group in trading during the second quarter, posting unexpectedly good results with a 9% rise during the morning trading. Morgan Stanley shares rose by 8.6% to $27.36 in morning trading on Wednesday, while Goldman’s shares rose $0.43 to $149.34.
Morgan Stanley gained $1.4 billion in net revenue from equity sales and trading in this period, in line with the previous quarter. Goldman said on Tuesday that their equity-trading operations in the second quarter were down by 84% compared to the first quarter, standing at $235 million.
The New York Times suggested that Morgan Stanley had stolen a march on Goldman Sachs by recruiting an extra 400 salesmen, allowing them to post strong gains in their equity trading unit.
Morgan Stanley has also discontinued much of it’s proprietary trading - where a firm plays the markets with its own money - which has the potential for huge returns, but can also be damaging when the market is volatile, as it was in the second quarter.
Brad Hintz, an analyst at Bernstein Research, said in a note to investors: ‘In equities, Bernstein was surprised to find that Goldman Sachs’s equity derivatives book was short volatility during the quarter, and was caught by sharply rising volatility, unable to quickly hedge down its risk... Trading is a cyclical business that equity investors rightfully place a discount on, due to its inherent volatility and uncertainty’.
‘Over time, Goldman Sachs has proven itself to be the most successful of the major capital markets firms by consistently generating the highest revenue return on net assets and generating the highest revenue yield on risk’.
Goldman Sachs are in hot water with investors, after reporting a fall in profits in the wake of the UK’s bonus tax and a fine in the US. Morgan Stanley said that it had kept $361 million to cover the cost of a one-off tax on bonuses paid to UK employees.
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