Why Morgan Stanley’s FICC traders look more talented than JPM’s and Goldman Sachs’s

Morgan Stanley is the latest US bank to report its first quarter results. As at J.P. Morgan and Goldman Sachs, its traders had a brilliant first quarter. Moreover, they did so within greater constraints than their rivals.

At Morgan Stanley, FICC trading revenues were up by 16% year-on-year, to just over $2bn during Q1. Its equities sales and trading desks posted 31% gains.

Morgan Stanley’s trading resurgence was on a par with rivals’. At Goldman Sachs, FICC revenues rose 10% and equities revenues rose 46% over the same period. At J.P. Morgan, FICC rose 20% (when the sale of the commodities unit was eliminated) and equities rose 22%.

However, Morgan Stanley’s results look especially impressive in light of the strict risk parameters placed upon the bank’s traders. This is particularly the case in fixed income.

As the charts below show, J.P. Morgan was very lenient with traders’ risk taking in the first quarter, allowing big increases in FX and equities. Goldman Sachs was not so lenient – allowing a 7% increase in FX Value at Risk (VaR) alongside a 10% decrease in VaR in rates and a 25% decrease in equities. And Morgan Stanley was not lenient at all – VaR fell across every product category and by 21% in FX.

The upshot is that Morgan Stanley’s fixed income traders look to have done pretty well within the bank’s strict risk constraints. The same can be said for people in Goldman Sachs’ equities business.