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Goldman Sachs and Morgan Stanley are the two Wall Street banks most connected to high-stakes trading. Historically, that made them seem glamorous relative to the other big U.S. institutions, which focused on the more steady business of retail banking.
The tide has turned. Persistently low volatility has made it clear that banks can’t count on traders to drive profits. Goldman’s equities revenue beat expectations earlier this week, in a small sign of hope, but Morgan Stanley’s results on Thursday were more far more indicative of the trend. Its $2.13 billion from equities was the highest among banks but was down 14% from a year ago and fell short of even the lowered estimates of $2.27 billion. In fixed income, currencies and commodities, revenue dropped 18% rather than the expected 7% decline.
This puts Goldman and Morgan Stanley in a tough spot. They’re not well positioned to immediately compete with Bank of America, Citigroup, JPMorgan Chase and Wells Fargo in catering to the banking needs of Main Street. At the same time, the bank executives have...