Morgan Stanley's Trade-In; SEC's Amnesia; Curry's Spicy Memo

Receiving Wide Coverage ...

Who Needs Volcker?: The verdict is in on Morgan Stanley's (MS) weak first quarter, and it's a rousing thumbs down. The Wall Street giant's shares fell 5.4% Thursday after it reported disappointing results and a sharp drop in trading activity. Bond-trading revenue fell 42% and stock-trading revenue 19%, according to the company. The news arrived at a time when Wall Street is supposed to be shifting away from risky trading. That's the theory, anyway. Among all financial firms that have reported first quarter results, revenues were up smartly for trading (41%) and investment-banking (43%), while there was a contraction in the core commercial-banking activities of deposit-taking (-26%) and lending (-1.5%), according to the Wall Street Journal. Morgan Stanley—whose Chief Executive James Gorman actually is seeking to play down trading and play up wealth management—appears to be stuck somewhere in the middle. It's "like a team changing sports, and the sport they are leaving didn't do so well, but the one they are going to did," Chris Grisanti, the owner and co-founder of Grisanti Capital Management (and an owner of Morgan Stanley shares) told the New York Times. "However, I think now there is some doubt in the market about their ability to make this transition." On the bright side, Gorman's wealth management push showed progress. Morgan Stanley's wealth management unit posted pretax income from continuing operations of $597 million, up 48% year-on-year. The money management business is one where the company will be joining a crowded field of players. Virtually the entire Street has concluded that docking clients for fees like clockwork is a more sustainable business model in today's environment than running a casino in the hope that someone other than regulators shows up. Richard Bove, the outspoken bank analyst now with Rafferty Capital Markets, interpreted Morgan Stanley's results and the market's reaction as reflective of broader doubts about Gorman's grand strategy. "Most investors are unhappy with the fact this company was not able to grow its trading activity as much as its peers and as a result they perceive there is a significant problem at the company," he said. Especially galling, perhaps, is that Citigroup—a brokerage joint venture partner that Morgan Stanley is in the midst of buying out—posted surprisingly strong Q1 results on the back of bond trading and investment banking. New York Times, Wall Street Journal, Bloomberg

Fuggedaboutit: Remember the financial crisis? Some observers have gone so far as to suggest that wrongdoing among bankers might have played a role. It's a concept that hasn't gotten much traction at the Securities and Exchange Commission or Department of Justice, critics charge. New York Times' columnist Gretchen Morgenson in a recent piece called on newly installed SEC chief Mary Jo White to ramp up crisis-era investigations and whistle-blower complaints that are now approaching their five-year statute of limitations. Not likely, according to Bloomberg. It reports this morning that White's self-professed "bold and unrelenting" enforcement program won't be focusing on that musty financial crisis stuff (although a few cases are still in the works). As evidence, the news service points to White's vow during her Senate confirmation hearing to concentrate on high-frequency trading and accounting fraud. White apparently doesn't buy the notion that Sarbanes-Oxley took care of the balance sheet shenanigans, as advertised. She has supporters. Inspections of auditors "repeatedly show an amazing lack of professional skepticism by accountants who repeatedly defer to very questionable applications" of the industry's accepted accounting principles, James Cox, a securities law professor at Duke University, told Bloomberg.Bloomberg, New York Times

Wall Street Journal