Morgan Stanley (NYSE: MS) was criticized for cutting back its trading activity in the wake of the credit crunch, ceding the market to companies such as Goldman Sachs (NYSE: GS), who took advantage of wide spreads and reduced competition to generate record trading revenues. Morgan Stanley vowed to rebuild and hired hundreds of staff (though it has ratcheted back proprietary activity).

Its efforts have now borne fruit. The company's better-than-expected second-quarter earnings were driven by trading revenue, which nearly doubled from a year ago. The moment was especially sweet because Goldman Sachs stumbled. One point of contrast: Morgan Stanley reported $1.4 billion in net revenue from equity sales and trading, while Goldman Sachs' equity-trading operations generated net revenue of $235 million in the second quarter.

Overall, Morgan Stanley trading revenue fell only 15 percent, while Goldman Sachs and others experienced bigger drops. Goldman says it took the other side of trades by customers who wanted to hedge against volatility--and thus took a bath. Overall, Goldman ratcheted back; average daily value at risk was $136 million in the second quarter, down from $245 million a year ago. Meanwhile, in contrast, Morgan Stanley reported average VAR of $139 million, just a 2.7 percent drop.

For more:
- here's a New York Times piece
- here's a MarketWatch article

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