http://www.bloomberg.com/apps/news?pid=20601087&sid=a.DWey.dMKrw&refer=home
The article at bloomberg describes the separate paths taken out by Goldman Sachs and Mogran Stanley in this crisis. While Goldman has increased its risk appetite by taking a higher amount as Value at Risk and reporting a record revenue of $9.4 billion, Morgan Stanley has maintained a conseervative stance pulling out of propreitary trading and decided to focus principally on its role as financial advisor and broker and in the process posting a loss of $177 million. Though the figures for profit and loss are debatable due to the murky accounting practices being followed by banks and hence are nor reliable, it is pretty clear that the banks have charted a different course in risk taking. Morgan Stanley CEO has said that the credibility of bank has to be strengthened and its current weak position warrants reduced risk taking and this policy will help the bank to reap dividends in the long term.
The article at bloomberg describes the separate paths taken out by Goldman Sachs and Mogran Stanley in this crisis. While Goldman has increased its risk appetite by taking a higher amount as Value at Risk and reporting a record revenue of $9.4 billion, Morgan Stanley has maintained a conseervative stance pulling out of propreitary trading and decided to focus principally on its role as financial advisor and broker and in the process posting a loss of $177 million. Though the figures for profit and loss are debatable due to the murky accounting practices being followed by banks and hence are nor reliable, it is pretty clear that the banks have charted a different course in risk taking. Morgan Stanley CEO has said that the credibility of bank has to be strengthened and its current weak position warrants reduced risk taking and this policy will help the bank to reap dividends in the long term.
Goldman sources are of the opinion that the risk was there to take according to situations. The competition was less and the available large bid-ask spread in some securities make the risk taking a well planned strategy. And it is finally down to the firm's DNA. "Goldman is Goldman". The risk taking is part of the firm's gene and will remain so. Their offer of giving back the TARP money and hence get out of any possible government censure in future is part of its strategy to reward the risk taking behavior as they have done till now.
Which strategy is better- only time will tell? The market is fluid and dynamic and a servere downturn or upswing in the economy will decide. But this is an example of the distinction in business strategies advocated in times like these. One strategy will be to remain conservative, count your chickens, consolidate your position and keep on the lookout for the situation to improve. The alternate strategy is to use this times to increase your market share due to reduced competitive forces operating in the market place. Which strategy a firm adopts is entirely dependent on the circumstances facing the specific firm and the marketplace in which the firm is operating.
In this case, Morgan was in a more precarious position than Goldman during the crisis and hence a conservative stance is warranted but arent they in danger of losing market share and opportunity to earn precious revenues by following this stance... well time will tell........
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