Analysis: Morgan Stanley stock traders rebuild burned bridges

Fri Jul 19, 2013 12:03am EDT
 
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By Lauren Tara LaCapra

NEW YORK (Reuters) - As Morgan Stanley's (MS.N: Quote) share price went on a headlong descent during the financial crisis in 2008, then-Chief Executive John Mack personally lobbied regulators to stop short-selling temporarily.

He succeeded. But in doing so, he made enemies among powerful hedge fund managers, for whom the practice of selling borrowed shares in a bet they will later fall is a key investment strategy.

Many, such as the famed short-seller Jim Chanos, were also big clients of Morgan Stanley's prime brokerage and stock trading businesses, and expressed their displeasure by taking their money elsewhere.

Over the past few years, Mack's successor James Gorman has been trying to repair those frayed relationships, win back clients and make new ones across its equities trading franchise. Ted Pick, Morgan Stanley's global head of equities and research, has been the point man on that mission.

As part of an overhaul dubbed "Project Velocity", Pick's team has over the past 18 months moved servers closer to exchanges and started using new kinds of wires that shave millionths of a second off trading speeds - moves aimed at winning more business from high-speed traders for whom every microsecond matters.

Morgan Stanley has also retained specialty sales staff who help clients pick stocks even as some rivals have cut back on such staff to reduce costs. The bank is also working with Japan's Mitsubishi UFJ Financial Group (MUFG) (8306.T: Quote), its largest shareholder, to win more business from trading clients in Asia.

The results are showing: Morgan Stanley posted on Thursday $1.8 billion of adjusted revenue from stock trading in the second quarter, up more than 40 percent from a year ago.

Stock trading results were strong across Wall Street last quarter, thanks in part to more stock sales from companies and higher trading volumes triggered by fears that the U.S. Federal Reserve would taper its quantitative easing efforts. But Morgan Stanley's gains were higher than all but one rival in both percentage terms and dollar terms.   Continued...

 
A street sign stands near the Morgan Stanley worldwide headquarters building in New York May 8, 2009. REUTERS/Lucas Jackson