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  • Writer's pictureIshfaaq Peerally



Let's start from some news from my portfolio, $BAYN.DE had its best days in years and is currently about 8% up. I also added some more positions on $PE .

When we talk about investment banking, there are 3 main players: JPMorgan $JPM , Goldman Sachs $GS and Morgan Stanley $MS . But all three of them have different businesses.

JPMorgan is focused on making big deals, Goldman Sachs on trading and Morgan Stanley on wealth management. Actually, wealth management is not a typical thing for an investment bank to do, this is part of retail banking. In 1933, the Glass-Steagall Act was passed and separated retail banking from investment banking. That's how The House of Morgan got divided into two banks: JPMorgan & Co. and Morgan Stanley. The Act was repealed in 2000 and several bank mergers happened, most notably, Chase Manhattan merging with JPMorgan & Co. to form JPMorgan Chase. As for Morgan Stanley and Goldman Sachs, they focused on investment banking. In 2008, Morgan Stanley was in a lot of trouble and after that they focused less and less on investment banking and more on retail banking. That's why today half of their revenues come from retail activities. Goldman Sachs, on the other hand, remained mostly an investment bank and only recently tried a few retail activities such as launching a credit card with $AAPL .

The investment banking part of Morgan Stanley include market making, bidding on Treasury bonds, IPOs(they were the lead underwriter of $UBER) and also trading(through partners). It is important for us to know the quality of their trades and this is where I saw something I didn't like. 64% of the bonds they are trading are Non-Investment Graded(junk bonds). For $GS it's 51% and $JPM 23%. This mean that the bank is at a great risk in a bear market and recession. Also, considering that they are greatly involved in wealth management and people tend to invest less in a bear market, their revenues will massively drop.

To summarize, we can say that Morgan Stanley is the best investment bank in a bull market, in a bear market, it is Goldman Sachs. But overall, it is JPMorgan Chase which also has great retail and custodian banking divisions.

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