3 Banks Taking Trading Risks, and Where

NEW YORK (TheStreet) -- Goldman Sachs (GS), Morgan Stanley(MS) and JPMorgan Chase(JPM) all took some trading risks in the second quarter, but it really only paid off for one Wall Street player.

Morgan Stanley was a stand-out performer this quarter, as its aggressive risk taking paid off despite a tough trading climate.

The investment bank topped analyst expectations for the second quarter, with trading revenue of $3.4 billion. Morgan's trading revenues also beat rival Goldman Sachs for the first time since the financial crisis.

Industry observers have been quick to note that Morgan Stanley took more risk during the second quarter than Goldman.

But the broad risk levels might not be the only explanation for divergent trading performances across investment banks. Where and when they took risk may have much to do with how a particular bank performed.

Morgan Stanley's average value at risk (VaR) in the second quarter rose 20%, to $145 million, from $121 million in the first quarter.

Value at risk is a measure of how much of a bank's money is at risk on any given day.

In contrast, Goldman Sachs took down risk significantly during the quarter, saying that an uncertain macroeconomic climate and unpredictable political factors reduced conviction among market participants.

The average daily VaR was $101 million, down 11% from the previous quarter and the lowest level it has been since the second quarter of 2006.

Goldman's trading results underperformed analyst expectations and its peers. Fixed income trading, the largest driver of its revenues, dropped 63% from the seasonally strong first quarter to $1.6 billion.

"Maybe we made a bad decision in taking too little risk. I don't know," said David Viniar, CFO of Goldman Sachs, during a conference call as he tried to explain the underperformance in trading.

But JPMorgan Chase took down risk significantly too, and it did not fare as badly.

JPMorgan's average VaR declined 9.4%, to $58 million, from the previous quarter. Trading revenue did slip 16% to $5.5 billion sequentially, but was up on a year-on-year basis.

That suggests that Morgan Stanley and JPMorgan might have either experienced better client flows or made better trading calls than Goldman Sachs. JPMorgan said during the conference call that its client flows had been good across businesses.