NEW YORK (TheStreet) -- Goldman Sachs (GS) faces significantly more pressure than Morgan Stanley (MS) to turn in a solid first quarter with both banks set to report first-quarter results in the next few weeks.
As always, the only number that matters will be trading revenues. Not only is trading consistently the biggest number these companies put up, it is also nearly impossible to predict.
We know already, for example, that Morgan Stanley will take a big loss on its sale of an Atlantic City casino project known as Revel Entertainment, and we have known for a long time that this was a seriously troubled investment. Roger Freeman of Barclays Capital estimates this sale will result in a $1.1 billion earnings hit.
Other investment banking activities, such as M&A advisory work and equity and debt underwriting, are steadily picking up, but these numbers are easy to track and so aren't going to surprise anyone. Global revenues from these activities were $14.7 billion in the first quarter, according to data provider Dealogic.That is well off the crisis-driven lows in the fourth quarter of 2008 and the start of 2009, but down from the fourth quarter of 2009, which benefited from massive equity issuance as financials including Wells Fargo (WFC), Citigroup (C)and Bank of America (BAC) shored up their balance sheets. As for trading, Goldman had a relatively weak fourth quarter, putting up $5.91 billion in revenue for the business. That was by far its weakest quarter of 2009 (see above chart). Goldman's shares got a nice lift last year on April 13, when fears that banks would be nationalized still gripped the markets and the Goldman traders stunned everyone by putting up a robust $8.56 billion in trading revenue in last year's first quarter. When Morgan Stanley turned in a weak trading revenue number for its year-ago first quarter nine days later, investors pummeled the stock, forcing former CEO John Mack to go out and hire a bunch of traders to get him back in the game. His strategy worked, and trading revenues perked up in the second and third quarters of 2009. Morgan Stanley also had a weak fourth quarter trading-wise, however, lending credence to the theory that this three-month stretch is almost always weak for traders. According to that theory, traders play it safe at the end of the year for fear a big loss will mean a direct hit to their bonus checks.
|Morgan Stanley CEO James Gorman|
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV