Morgan Stanley battles Goldman Sachs for stock trading supremacy leveraging hedge fund partnerships and technology, closes trading gap with largest jump since 2022
Morgan Stanley is not sitting idly to regain its lost supremacy in equity trading and is eyeing to overtake Goldman Sachs, the bank it lost the top position to 3 years back. It was one of the market leaders in equities trading, but has been pushed back by a series of hurdles recently and is now beginning a counter-offensive against Goldman.
Since the early nineties, Morgan Stanley and Goldman Sachs have been major contenders, especially in equities trading. But Morgan Stanley’s equity trading unit declined following the shutdown of Archegos Capital Management – the $36 billion private investment firm owned by American businessman and trader Bill Hwang. The collapse that occurred to Archegos in 2021 cost some major investment banks such as Credit Suisse, Deutsche Bank, Goldman Sachs, MUFG, Nomura, UBS and Wells Fargo including Morgan Stanley, billions of dollars. This scandal damaged the image of the firm and was a major loss to its trading business. Another issue that Morgan Stanley faced last year was the continued withdrawal from some areas of banking, leaving it less liquid to capitalize on pockets of market-making dominance that Goldman Sachs has chased aggressively.
However, Morgan Stanley remains focused on the goal of closing the gap and reclaiming some lost ground in the highly profitable equities trading business. A Financial Times report on Tuesday indicated that the latest figures reflect signs that its efforts are bearing fruit. Morgan Stanley’s equities trading revenues at $3bn jumped almost 20 per cent over the prior year quarter and vastly surpassed analysts’ forecasts. Goldman Sachs, on the other hand saw a 7% increase to $3.2bn while JPMorgan Chase fell just short of $3 bn with a near 21% growth. This shrinking gap points to the effectiveness of Morgan Stanley in the growth of its trading operations despite the challenges of the past few years.
Morgan Stanley is the closest it’s been to Goldman since 2022 under new chief executive Ted Pick, a former head of the bank’s equities trading business. One major part of its plans has been to focus on large hedge funds like AQR Capital Management and Two Sigma. The bank was an early suitor for these funds that trade markets using computers and mathematical models and has made a big investment in technology to support its operations. These firms had sophisticated quantitative trading techniques, and since they provide a large trading volume, are considered a lucrative market to unlock by Morgan Stanley’s trading arm. The trend of Morgan Stanley to serve hedge funds is in line with the firm plans to expand the trading desk and increase revenues.
The further strategy for Morgan Stanley could be seen in the consistent continuation of the company’s recovery and the ongoing development of multi-faceted cooperation with essential institutional clients, especially hedge funds.
