Morgan Stanley's stellar quarter just rubs Goldman's nose in its own stinky earnings

Antony Currie, associate editor

James Gorman, chief executive officer of Morgan Stanley.
Michael Nagle | Bloomberg | Getty Images

James Gorman is rubbing Goldman Sachs' nose in it. Morgan Stanley's chief executive didn't just hit his return target with a $1.8 billion first-quarter earnings showing. His fixed-income, currency and commodities traders virtually doubled their top line from what was a tough period for the industry last year, confirming that their chief rival made a mess of the first three months of the year.

Morgan Stanley's 96 percent jump in fixed-income trading was easily the best of the batch of Wall Street's bulge-bracket results. Bank of America, Citi and JPMorgan each boosted their comparable division's revenue just shy of a fifth, which was enough to take them back to roughly what they were earning in the first quarter of 2015. A 2 percent drop in the top line, though, left Goldman's traders bringing in almost half what they managed two years ago.

More from Breakingviews:
Goldman fintech revolution can't come fast enough
Bank of America return to health limited by DC drip-feed
Private sector tells awkard truth on China growth

Business mix explains part of the relative slump: currency and commodities markets – Goldman specialties – were slow, though others only mentioned foreign exchange as problematic. But Lloyd Blankfein's bank also blamed low volatility, "relatively light" client activity and a decline in rates and credit products. By contrast, Morgan Stanley claimed buoyant conditions fueled its outperformance, as did JPMorgan.

Fixed-income trading was not the only battlefield where Morgan Stanley emerged victorious last quarter. Its equities traders held up better than Goldman's, registering a 2 percent decline year-over-year compared with its rival's nearly 7 percent. Gorman's teams also more than doubled underwriting revenue in equity and debt, compared with increases of 99 percent and 38 percent, respectively, at Blankfein's Goldman.

Lloyd Blankfein, Chairman and CEO of Goldman Sachs.
Michael Newberg | CNBC

Morgan Stanley's vastly improved results meant the firm managed to generate an annualized return on equity of 10 percent, after stripping out a $112 million tax benefit from settling employees' share-based pay. That's bang on the goal Gorman has set – and leaves Goldman trailing with an annualized adjusted ROE of just 8.9 percent.

That will give shareholders yet more comfort that Gorman's strategy is finally paying off. For Blankfein, though, the questions are growing.

Commentary by Antony Currie, an associate editor at Reuters Breakingviews. Follow him on Twitter @AntonyMCurrie.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.