Despite losing plenty of its senior traders to hedge funds in recent years, Morgan Stanley has put in a very good second quarter in sales and trading.
Over the past three years, headhunters say Morgan Stanley has suffered disproportionately as senior trading talent has left for the hedge fund sector. Exits have included everyone from Marcin Wiszniewski, a 14-year Morgan Stanley veteran and head of FX and emerging markets trading, who went to BlueCrest in 2010, to Anthony Wainer, head of high yield credit trading for EMEA at Morgan Stanley, who was said to have left last month for Moore Capital. Ken deRegt, Morgan Stanley's 57-year-old head of fixed income, nipped away in May join a business venture with his son.
Based upon today's results, none of the departures seem to have done the American bank any great harm. After years of disastrous trading results and particularly poor performance in fixed income sales and trading in the first quarter of 2013, Morgan Stanley has suddenly done very well indeed. Excluding DVA, fixed income revenues at the bank rose 55% year-on-year in the second quarter. Over the same period, equities sales and trading revenues rose 38%.
In fixed income in particular, Morgan Stanley's performance was far better than rival firms. Goldman Sachs, for example, only mustered a 12% increase in fixed income sales and trading revenues in Q2. Morgan Stanley is now in a position to increase pay: compensation spending in its institutional securities business rose 20% year-on-year in the second quarter, driven by higher revenues.
The bad news is that Morgan Stanley's traders may not yet be out of the woods. Banking commentator William Wright points out that the return on equity at Morgan Stanley's investment bank was far below other banks over the first half of 2013. At the same time, even with the dramatic increase in fixed income sales and trading revenues, Morgan Stanley only mustered net revenues of $1.2bn last quarter - below even the lower end of its stated target of $1.5-$2.5bn. Morgan Stanley's senior traders may have gone. Those left behind still need to work hard to secure their future.