Bloomberg News

BofA Traders Have Perfect Quarter as Morgan Stanley Stumbles (1)

May 08, 2013

Morgan Stanley CEO James Gorman

In January, Morgan Stanley Chief Executive Officer James Gorman announced plans to reduce the amount of capital used by the fixed-income trading business as he seeks to double return on equity even without improvement in markets. Photographer: Scott Eells/Bloomberg

Bank of America Corp. (BAC:US)’s traders posted gains every business day during the first quarter as Morgan Stanley (MS:US)’s lost money in eight sessions, double the rate a year earlier.

Bank of America generated more than $25 million of revenue on 97 percent of trading days, compared with a 76 percent rate at Morgan Stanley, according to quarterly filings by the companies. Charlotte, North Carolina-based Bank of America posted the unblemished quarter after reining in value-at-risk, an estimate of potential trading losses, its filing shows.

“If you look at our VAR, and our risk-taking, we’re keeping it balanced relative to the rest of the company,” Chief Executive Officer Brian T. Moynihan, 53, said in an April 17 conference call. “We may not roar as much as some people might, because this is one of the many businesses we have and we drive it for the benefit of the investing customers and also the issuing customers.”

While Bank of America avoided losses, its trading revenue slumped 20 percent, a drop surpassed only by Morgan Stanley among the five largest Wall Street banks. The decline at Morgan Stanley was driven by a 42 percent slide in fixed-income and commodities trading, excluding accounting charges tied to the firm’s own debt.

Reducing Capital

Morgan Stanley CEO James Gorman, 54, announced plans in January to reduce the amount of capital used by the fixed-income trading business as he seeks to double return on equity (MS:US) even without improvement in markets. The New York-based bank said last month it had already reached its asset-reduction target for the end of 2013.

The fixed-income business suffered amid lower commodities revenue in the first quarter, Chief Financial Officer Ruth Porat said last month. Revenue also fell in interest rates, while credit and foreign-exchange trading were strong, she said.

Morgan Stanley’s trading revenue declined 32 percent in the first quarter from a year earlier. None of its daily losses exceeded the firm’s value-at-risk. Mark Lake, a spokesman for the firm, declined to comment.

Trading revenue fell 5 percent at JPMorgan Chase & Co. (JPM:US) and 12 percent at Goldman Sachs Group Inc. Both firms have yet to release quarterly filings. Citigroup Inc. (C:US), which had a 4 percent decrease in trading revenue, doesn’t disclose money-losing days.

Wells Fargo

Wells Fargo & Co. (WFC:US), which relies least on trading among the largest U.S. banks, had at least four days of negative revenue from those operations during the first quarter, according to a filing today from the San Francisco-based firm.

Morgan Stanley said in yesterday’s filing it boosted first-quarter legal reserves because of a settlement reached after the firm reported results (MS:US) April 18. The change increased expenses by $32 million and cut earnings per share by 1 cent.

The bank said last month it settled lawsuits brought by investors in two structured investment vehicles called Cheyne and Rhinebridge. The investors, led by Abu Dhabi Commercial Bank and King County, Washington, also agreed to drop their claims (MS:US) against Moody’s Investors Service Inc. and Standard & Poor’s, the world’s largest provider of credit ratings owned by New York-based McGraw-Hill Cos., the investors said in a notice filed April 26 in federal court in Manhattan.

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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Companies Mentioned

  • BAC
    (Bank of America Corp)
    • $15.44 USD
    • -0.16
    • -1.04%
  • MS
    (Morgan Stanley)
    • $31.68 USD
    • -0.33
    • -1.04%
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