Awards for Excellence 2017
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The revival of a franchise is always a compelling story and nowhere has it been more evident than in Morgan Stanley’s markets business. For its dramatic turnaround in fixed income trading, coupled with its continued equities leadership, the bank is North America’s best bank for markets.
The fixed income division (FID) at Morgan Stanley suffered badly through the financial crisis. So when president Colm Kelleher slashed headcount by 25% at the end of 2015, some observers wondered if the firm’s heart was still in the business at all. But the restructuring turned out to be a savvy move and one that makes it all the more profitable now that revenues are rising again.
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Sam Kellie-Smith, |
The bank does not break out its sales and trading revenues by region, but globally its revenues are up by 25% in the year of the awards period, with FID up more than 80%. The FID group has been reorganized under the leadership of Sam Kellie-Smith, with a streamlined structure that is intended to quicken decision making. Kelleher has sized the business for a $1 billion quarterly run rate – a target that the group exceeded in every one of the quarters under review.
In particular, the bank has hoped to increase its client footprint – and the moves are paying off. Coalition ranks it in second place in US investment-grade corporate credit trading, with Oliver Wyman reckoning the bank’s market share rose three percentage points to 13% in 2016. Greenwich ranks it the top US trader of collateralized loan obligations and the best commercial mortgage-backed securities trader. It is also ranked top by Coalition and Oliver Wyman in North American power and gas trading.
Much of the reinvigoration has come from bringing expertise from the equities side of the business to bear on its fixed income effort. Kellie-Smith was previously the global head of equities trading, while equities COO Matt Berke has been promoted to the same role for the whole sales and trading division. Ted Pick, who runs all of sales and trading, also hails from an equity background and is a contender to run the firm in the future.
It has not just been about personnel. The firm is gradually extending its formidable equities infrastructure to support its other trading efforts. Its FX electronic trading platform, MSET FX, uses systems that originated on the equivalent equities platform; and governance and risk management practices have also been imported from there.
Equities has not been neglected while other areas have been improved. The firm is now a clear leader in revenues, also marking a revival of its historic franchise that had suffered as the firm put an emphasis on boosting fixed income before the financial crisis. Having slipped below the leading pack by 2009, it is now firmly back on the front foot.
And Morgan Stanley is reaping benefits from bringing equities and fixed income together. Pick says: “It makes absolute sense to have one sales and trading team across asset classes. By and large, we see that the broader the client coverage we have, and the broader the remit of our discussions, the better off we are as a firm.”
