Goldman Sachs and Morgan Stanley once competed against each other with a special zeal. To some extent, they are still the two premiere investment banks on Wall Street. But they seem to have evolved two separate business models, and the comparison may not be as apt for much longer. 

As for now, Morgan Stanley shares have risen about 25 percent so far in the second quarter, while Goldman's have risen almost 40 percent. The bond markets have likewise shown lots of love for both companies. Since the collapse of Lehman Brothers, yield spreads for both firms soared, as pessimism about the future of both persisted. But that pessimism has abated, and spreads have really declined, notes Bloomberg. It's true that all corporate debt has been rallying, but there seems to be a legitimate shift in perception. Their spreads remain lower than big commercial banks that have yet to repay TARP funds but higher than JPMorgan's. 

The irony is that both Goldman Sachs and Morgan Stanley have issued structured notes tied to their own debt, which have to be marked to market. That results in an accounting charge against profits. In the first quarter, that charge was $1.5 billion for Morgan Stanley, according to Bloomberg. 

Still, it would appear that the credit markets are comfortable with both firms, even as they slowly come to embrace different business models. Which may put the banks on separate paths. For now, Goldman seems to have the upper hand.

According to Reuters, Goldman is expected to earn $3.32 per share before extraordinary items, which has spawned some angst about the return of big bonuses. Meanwhile, Morgan Stanley is expected to lose 40 cents per share. For now, both are enjoying strong advisory and trading revenue. One wild card is whether Goldman will soon revert to using principal investments to power earnings. It may happen sooner than we think. 

All in all, it will be interesting to see how these firms evolve short-term. - Jim