Hooray, Morgan Stanley Ekes out a Small Profit!

…and further proves it’s no Goldman Sachs.

Let me begin by congratulating those at 1585 Broadway for doing what many deemed impossible – actually turning a quarterly profit in 2009. Okay, to be fair, earnings expectations had been around 27 cents per share, and MS came in at 38 cents for a whopping total of $757 million.

Now, $757 million is better than a large negative number, which MS had posted during the three preceding quarters. However, it’s a far cry from the $3.6 billion that emerged from 85 Broad. While GS and MS had often been mentioned in the same sentence, the credit crisis has put a chasm between the two, with Goldman ending up on the better side.

The problem isn’t that MS has suddenly become a crappy franchise with inept management and incompetent employees across the board. No, the problem is that global investment banks make their money off two operations: banking and trading. MS remains quite good at the former. In fact, according to Thomson Reuters, Morgan overtook GS as the top-ranked M&A adviser through the third quarter of 2009.

Unfortunately, on the trading side, Morgan’s results continue to disappoint, and in an environment where M&A remains slow, trading weakness is an extremely bad thing for the bottom line. "Weakness" may seem like an overstatement since this quarter, MS notched $2.1 billion in fixed income revenue and $1.1 billion in equity trading gains. While $3.2 billion in sales and trading revenue isn't a drop in the bucket, it is more than $5 billion behind Goldman's number and even less than Citi's. Accounting for the large gap are Morgan's fixed income results, more than $2 billion lower than Citi's and almost $4 billion lower than Goldman's.

What explains this poor showing? Since Lehman’s collapse, MS has cut back its trading exposure in favor of less risky activities like private wealth management (hence, the joint venture with Citigroup’s Smith Barney). However, competitors like GS have upped the ante, and so far, the decision has yielded great gains.

Perhaps Morgan’s more cautious attitude will ultimately prove prudent. But if MS wants to once again be mentioned in the same breath as its downtown rival, it will somehow need to turn in much better trading results. And with a new chief that has no trading background, something tells me the boys at 1585 Broadway will have a hard time.