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It is always pleasing when a consistent underperformer starts to deliver the goods. At Morgan Stanley, however, it remains far from clear how lasting its recovery will prove. John Mack, the investment bank’s chief executive officer, has done well enough since his return to the helm last summer. Naysayers will no doubt point out that performance in the first quarter was largely driven by cyclical trading activities. But increasing trading revenues by 66 per cent year-on-year is no mean feat, especially when combined with a 12 per cent fall in trading value-at-risk.

A good market environment and easy comparables notwithstanding, that suggests Morgan Stanley’s risk management is improving. That is especially encouraging, given its stated desire to bet more of the bank’s own money.

Broadly speaking, plans to redirect resources towards other growth areas, such as emerging markets, derivatives and leveraged finance, probably make sense too. But, given the structural challenges faced in cash equities, it will be hard for these new businesses to bridge the gap anytime soon. Similarly, fixing the retail brokerage arm and the credit card business remain long-term projects.

Mr Mack’s reputation, however, rests largely on cutting costs, rather than far-sighted investments in growth. He has duly wielded the knife where possible, but, in the current market, more of the same would only risk more high profile departures. To its credit, the bank seems to have realised as much. Given the potential for gains if the turnround succeeds, its shares are probably a better bet than those of most rivals. With cyclical risks firmly on the downside for the whole sector, however, Morgan Stanley’s attractions in absolute terms continue to look limited.

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