Morgan Stanley surpasses Goldman Sachs in risk management

Morgan Stanley HQ

Morgan Stanley has quietly surpassed its archrival Goldman Sachs in a key measurement of how the firms manage risk, raising questions about whether Goldman’s business model needs to change in order to reflect the current regulatory environment.

Fox Business Network reports that for the first time since the financial crisis of 2008, the cost of buying a so-called credit default swap, or insurance policy on Morgan Stanley's debt, has fallen below that of Goldman Sachs.

Traders and analysts say the move is an indication that investors have more confidence in the risk management expertise of Morgan Stanley’s chief executive James Gorman over Lloyd Blankfein, his counterpart at Goldman Sachs and long considered among Wall Street's best risk managers. Since taking over as Morgan’s chief executive in 2010, Gorman has moved the firm away from risk-taking such as trading, and emphasized advice through Morgan’s retail brokerage arm and its investment bank - both of which have propelled the firm’s earnings over Goldman’s in the third quarter.

And investors have taken note. 'In the past couple of weeks it is apparent that investors have decided that Gorman’s approach to the business is better than Blankfein’s', said analyst Dock Bove of Rafferty Capital. Bove said Morgan is being viewed by investors as a 'wealth management company' with less risk and less volatility in its stock price, and 'wealth management is currently seen as superior to being a very strong trader'.

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Morgan Stanley Passes Goldman Sachs in Risk Management

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