Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence


Morgan Stanley Plans Expansion in Fixed-Income

During 2009, Morgan Stanley dramatically underperformed both Goldman Sachs and JPMorgan in the performance of its securities business, particularly in the area known as FICC (fixed-income, currencies and commodities). The Financial Times article from February 1st 2010 entitled Morgan Stanley In Hiring Push has more details.

According to Morgan Stanley's new chief executive, James Gorman, Morgan Stanley plans to hire several hundred new traders over the next several years to hopefully close the gap with Wall Street trading rivals. Rather interestingly, he stated "We are not showing clients enough. We don't have people on the ground. We are not sufficiently penetrated with large clients and there are some smaller clients we are missing out on." He continued: "We need to seriously grow our footprint in products like currencies, equity derivatives and commodities. We could easily be 25 percent bigger than we are. [Investor's] bias is to do more business with [Morgan Stanley], the burden is on us to deliver."

What Toomre Capital Markets LLC ("TCM") finds so interesting with the article is the degree to which Morgan Stanley under-performed. Apparently, in 2009 Morgan Stanley had revenues of $5bn in fixed income trading (or $8.8bn excluding an accounting loss) compared with $17.6bn at JPMorgan and $23.3 recorded by Goldman Sachs. Put another way, Morgan Stanley's FICC unit only generated revenues one half of JPMorgan's revenues and thirty-eight percent of what Goldman Sachs recorded. WOW!! Clearly Morgan Stanley is not even close to its two rivals in this business area, which is counter to what many market participants perceive.

The article concludes with the thought that the need to add more traders and sales people to better staff the basic product areas of this business unit is an admission that at least one of former CEO John Mack's decisions was wrong. His decision to focus on various complex derivatives and associated products popular before the credit crisis left Morgan Stanley ill equipped to benefit from the pick-up in the trading of simpler fixed-income products.

UBS Restructuring FICC Division

On Thursday January 22nd 2008, UBS announced that it is "finally" restructuring its Fixed-Income, Currencies and Commodities division ("FICC"). Part of the change involves completely closing down its real estate and securitization businesses as well as its exotic structured products operation. These changes are "part of a radical change that is needed to take FICC forward" announced Carsten Kengeter and Jeff Mayer, joint heads of FICC who arrived late in 2008.

As part of the restructuring, Sascha Prinz and David Sacco, global co-heads of the rates business, Chris Ryan, global head of credit, and Todd Morakis, global head of commodities, are leaving the bank. There are part of the changes announced by Jenker Johansson that "will enable us to leverage our core strengths while relying on lower risk and balance sheet utilization."

According to the memo announcing these changes, UBS is repositioning its investment bank, with the overriding strategy about emphasizing client business on "facilitation and flow," as well as providing strategic and tactical solutions with less reliance on the bank's balance sheet. Under the restructuring, the existing products areas in the FICC division are to be consolidated into three new business areas - macro, credit and the workout group.