Total disaster for Morgan Stanley's trading aspirations

At least part of the reason why Morgan Stanley decided to part company with John Mack was his tendency to lag behind the crowd (ie. Goldman Sachs) when it came to strategy.

Mack left nearly a year ago, but Morgan Stanley still looks weirdly strategically superannuated.

2010 was supposed to be the year that the 400 sales and trading hires announced by the bank in July 2009 pumped up Morgan Stanley's sales and trading revenues.

For a brief moment, this seemed to be happening. In the second quarter, Morgan Stanley's sales and trading performance was equivocal.

However, in the third quarter, its trading performance looks like an unmitigated disaster.

Year on year, FICC trading revenues at Morgan Stanley are down 58%, far more than at any other bank to have announced so far. Equities sales and trading revenues are down 22%; at both Citi and JPMorgan equities sales and trading revenues increased year on year.

Overall, sales and trading revenues at Morgan Stanley are down 45% year on year. At Goldman, they were down 36%; at BAML they were down 15%; at JPMorgan they were down 30%; and at Citi they were up 1%.

Morgan Stanley does not, therefore, look like a bank which is growing its sales and trading business. Morgan Stanley does look like a bank which has missed the sales and trading boat.

The perception of a bank which has gone badly awry is deepened by the decimation of profits at Morgan Stanley's institutional securities group: pre-tax income went from $1.3bn in the third quarter of 2009, to $240m in the third quarter of 2010.

Conclusion: bonuses in Morgan Stanley's sales and trading business are going to be unprecedentedly small.