Why traders prefer a Goldman Sachs desk over Morgan Stanley
Whilst IB has been going through a relative apocalypse this year, fixed income trading revenues have been resilient, mostly driven by macro volatility and commodity price changes. However, traders at some US banks were better placed to take advantage of the chaos.
10-Q filings for US banks indicate the number of profitable trading days banks achieved within their risk limits. And they suggest dramatic differences in risk tolerance between banks.
Goldman Sachs, Morgan Stanley, and Bank of America gave a detailed breakdown of trading profits. Others, like JPMorgan, did not. The disclosures are still informative.
Goldman traders play to win
Goldman Sachs, without a doubt, took the most risk of the published banks. It had over a third of trading days above $100m.
The downside is that it lost big, too – posting losses on nine days in Q3 2022, more than four times as many days as Morgan Stanley (BofA posted none). Goldman traders' loss days were also substantial – adding them up implies the firm lost between anywhere between $250m and $400m in total on those days, whilst Morgan Stanley lost between $0 and $50m on its two days.
Bank of America didn’t post a single losing day
Although BofA didn’t have the same superstar days that Goldman did, they achieved something quietly impressive; they didn’t post a single loss-making trading day in Q3.
The implication is that BofA's traders operate within stricter risk limits than Goldman's.
Morgan Stanley traders don’t have anything to write home about
On the whole, it seems that Morgan Stanley attempted a middle path, trying to avoid the risks of Goldman’s higher risk strategy while reaping the rewards of Citi’s more conservative one. If so, it failed: Morgan Stanley had more loss-making days (like high-risk Goldman) and a worse performance (like BofA).
Interestingly, Morgan Stanley reported 66 trading days in its review, two more than Goldman. Whether that’s down to trading in more jurisdictions or whatever else isn’t clear.
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