Morgan Stanley, along with the rest of the investment banks, has been whacked by the mess in the mortgage and credit markets. In a research note this week, Oppenheimer analyst Meredith Whitney cut earnings estimates for the second quarter and fiscal 2008 and 2009 for Morgan Stanley,
Merrill Lynch(MER Quote - Cramer on MER - Stock Picks),
Lehman Brothers(LEH Quote - Cramer on LEH - Stock Picks) and
Goldman Sachs(GS Quote - Cramer on GS - Stock Picks). The reason is, in part, related to price changes in credit default swaps. On the surface this may seem troubling, but Whitney has Morgan Stanley listed as 'market perform.'
Furthermore, Morgan Stanley's financial chief Colm Kelleher said that it will take several more quarters to eliminate uncertainty related to credit losses. The firm is also talking to institutional clients about doing deals and raising capital. However, the discussions are not turning into business yet because the market is not receptive at the moment.
This may sound like difficult conditions to achieve a trading win in. However, these problems are not unique to Morgan Stanley, they are widespread in this sector. I like Morgan Stanley because its stock is trading at a discount, and it has $915 billion in cash in the bank. It also has institutional support; nearly 80% of its stock is held by institutions.
The firm has had to make a number of changes though, some of which could impact the bottom line. It said it is keeping its leverage low, which means Morgan Stanley's profitability will have to come from gaining market share. The shop also said it will attempt to grow its global wealth management biz through acquisitions, which is the last leg of its three stage growth plan. It is targeting major U.S. cities as well as India, China and Latin America.
Lenny Dykstra
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