Maybe Goldman Sachs didn't do so badly after all? A day after Goldman reported a 50% year-on-year drop in fixed income trading revenues in the fourth quarter, Morgan Stanley's just done much the same and for much the same reasons (falling revenues in rates and FX, a difficult comparable quarter). While Goldman's been lambasted for its failings, however, Morgan Stanley is keen to let it be known that everything's ok.
During today's investor call, Morgan Stanley CEO James Gorman said the bank remains unperturbed by its fixed income sales and trading revenues of $808m in the fourth quarter (down from $1.5bn the previous year): the bank's aim is to average $1bn in fixed income revenues per quarter, said Gorman. Bad quarters are offset by good and Morgan Stanley's overall business is sufficiently diversified to handle it. "We do believe there will be volatility in this business quarter to quarter," confirmed Morgan Stanley CEO Jonathan Pruzen. "In a better market backdrop we would expect to participate in the recover. We have the capacity to do that."
Nonetheless, collapsing revenues in fixed income trading took their toll on profits at Morgan Stanley's Institutional Securities Group (its investment bank). Net income across ICG fell 60% year-on-year in fourth quarter, to just 8% of revenues, down from 24% in the fourth quarter of 2016. In normal circumstances, cost-cutting might ensue, but at Morgan Stanley this doesn't appear to be the case. Instead, Gorman today actively praised Ted Pick, the sweary trader who runs the bank's fixed income business for doing a "phenomenal job." In other words, fixed income traders are still in the bank's good books.
Gorman also took the opportunity to allude to the dangers of joining expansionary European banks (think Barclays) on Wall Street. While competition from European banks is certainly increasing, Gorman said many are "national champions" with a history of expanding in the U.S. only to retreat again later. Last year, Barclays poached one of Morgan Stanley's most senior quants in New York, for example. "From time to time they [European banks] expand out of their home market, but over time that gets washed out," he says. The implication is that while European banks on Wall Street may hire you at a premium today, their jobs may disappear tomorrow.
Asked if Morgan Stanley proposes to invest in its Institutional Clients Group anywhere, Gorman said Asia remains a point of focus for "organic growth" potential. Yesterday, Goldman Sachs reported a 4% year-on-year reduction in its fourth quarter Asian revenues.
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