Better late than never. Morgan Stanley is reporting record performances all over the place, about a year later than many peers. That says a lot about the scale of the challenge that John Mack faced upon his return just over a year ago.

Still, every successful quarter strengthens the case of Morgan Stanley’s boss that the company just needed better execution. Admittedly, much of the positive surprise in third-quarter earnings came from lower than expected compensation accruals and tax estimates. Even if borne out by fourth-quarter trends, this could prove difficult to repeat.

More encouragingly, however, Morgan Stanley’s revenues proved remarkably solid, notably in merger advisory and trading. It can also claim progress in its retail brokerage arm in winning wealthy clients. Meanwhile, its credit card unit is benefiting from strong loan growth and low provisions, leaving asset management as the main headache.

But with its shares trading at a five-year high, further momentum might prove harder to come by. Having arrived late to the party, Morgan Stanley still appears sensibly cautious in betting its own money. The change in its value at risk reporting from a 99 per cent to a
95 per cent confidence interval superficially reduces its stated VaR, although it also improves comparability with rivals.

VaR levels have fallen sequentially under both methodologies. But the reduction is largely due to taking on more risk in commodities – and assuming that these are only imperfectly correlated with other assets. Morgan Stanley has done well in oil, electricity and gas. Days after the Amaranth disaster, however, investors may treat such trading revenues with caution – and not only when it comes to Morgan Stanley.

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