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Morgan Stanley has stepped up efforts to regain its traditional dominance in stock trading, a position it ceded to longtime rival Goldman Sachs in the wake of the 2021 implosion of Archegos Capital Management.

Under new chief executive Ted Pick, who previously headed the bank’s equities trading business, Morgan Stanley has narrowed the gap with Goldman to its smallest since 2022.

In the latest quarter, Morgan Stanley’s revenues from equities trading increased by almost 20 per cent from a year ago to $3bn, far in excess of analysts’ expectations. That compared with a 7 per cent increase to $3.2bn at Goldman, and a 21 per cent increase to just shy of $3bn at JPMorgan Chase.

“They are doing everything they possibly can to capture back [market] share,” one Goldman executive said of Morgan Stanley. Morgan Stanley declined to comment.

Equities traders turned in bumper results last quarter in Europe and the US. BNP Paribas, Barclays and Société Générale all reported double-digit percentage increases in equities trading as snap elections in France and Britain spurred on activity.

While the European banks posted bigger percentage gains than Morgan Stanley — 58 per cent at BNP and 24 per cent at Barclays and SocGen — the value of the business at the trio was substantially lower.

Banks, including Barclays and BNP Paribas, have identified the equities trading business as a growth area.

But the top stock trading banks remain the three largest US investment banks: Goldman, Morgan Stanley and JPMorgan.

Morgan Stanley has since the start of the year become increasingly willing to extend credit through its prime brokerage business, which services hedge funds and other similar clients, according to the bank’s clients and its rivals.

One hedge fund executive said there had “been a night and day difference” since Pick started as chief executive in January.

A Morgan Stanley executive said the bank was particularly focused on winning new quant hedge funds such as AQR or Two Sigma, as well as equity hedge funds that buy and bet against stocks.

The bank was early in courting quantitative hedge funds, which trade markets using computers and mathematical models, as well as investing heavily in technology to underpin its operations.

But Morgan Stanley became more cautious and restrictive about the type and size of business it would do with clients in the wake of the Archegos scandal, when the collapse of Bill Hwang’s family office landed the bank with $1bn in losses from credit extended to the firm.

The mishap prompted a review of the bank’s client book and risk management governance, according to people familiar with the matter, and has allowed Goldman to consistently outearn Morgan Stanley in equities trading in the period since.

Since the start of 2022, Goldman has posted higher revenues from equity trading than Morgan Stanley in eight out 10 quarters. In that time, Goldman reported revenues in equities trading of $29bn — $2.4bn more than Morgan Stanley.

The US government investigation into Morgan Stanley’s block trading equities team and a focus on its fast-growing wealth management business also contributed to its relative decline, according to insiders, competitors and investors.

“All those things, combined with generally a more aggressive Goldman post-Covid, you definitely saw a market share decline [in equities] at Morgan Stanley,” said Christian Bolu, senior US capital markets analyst at Autonomous Research.

“I did think with Ted Pick coming on, that would change. And it feels like, perhaps the most surprisingly, only two quarters in, it feels like it is changing,” said Bolu.

Unlike Morgan Stanley, Goldman avoided a loss on Archegos.

That freed its traders to pick up more business, while clients were wary of doing more business with the prime broking divisions of banks that had taken losses, for fear of a potential retrenchment to follow. Some banks, such as Credit Suisse and Nomura, did pare back or exit their prime brokerage business.

“Goldman got lucky [with Archegos] but it helped them,” said the Morgan Stanley executive.

Still, the CEO of one large investment firm said Morgan Stanley still showed caution in its attempts to win more business.

“I think their market-leading position [across prime services] and having had their trousers pulled down by Archegos has made them less aggressive in chasing marginal business,” he said. “We aren’t seeing [that] change significantly.”