Morgan Stanley Looks Like FinReg Winner: Analysts

Washington D.C. (TheStreet) -- The jury is going to be out for a while on how financial reform will impact bank profits, but an early read from MorningStar analysts Michael Wong and Jamie Peters is that James Gorman & Co. are well-positioned.

"We believe that Morgan Stanley(MS) is the bank that is much less exposed to these changes in regulations," Wong said in an interview with TheStreet. "It recently did its large joint venture with Citigroup(C) Smith Barney Unit. It has built out much more stable revenue lines, and those stable revenue lines are what helped it out perform in the second quarter."

Wall Street Bank Earnings Preview for 3Q

Gorman took over as CEO of Morgan Stanley at the beginning of this year, and the bank reported strong second-quarter earnings earlier this week as its trading revenue held up better than analysts were expecting.

Even though the final versions of the reforms called for the Dodd-Frank Wall Street Reform and Consumer Protection Act will take months to emerge -- and it will take banks even longer to comply with the laws -- long-term investors should be aware of how these regulations will affect each bank's equity.

Wong believes Morgan Stanley and Goldman Sachs(GS) will take hits in revenue because of the new over-the-counter derivative and proprietary trading regulations. The pair will also feel the pinch of the Volcker rule's restrictions on hedge fund and private equity investment, although to a lesser extent, he said.

"We don't think that this [the Volcker rule] will be as impactful for these companies in general because they should be able to sell their current stakes in these businesses at fair value and they will still be able to operate these businesses subject to that 3% subtier limit," Wong said.

All the banks are expected to look for ways to offset the hits to their bottom lines. Morgan Stanley is pushing further into the fairly decent margin, low capital wealth management business, while Goldman Sachs is bulking up its presence in developing economies, and also trying to expand its asset management business, according to Wong.

Meanwhile, the four big money-center banks -- Bank of America (BAC), JP Morgan Chase(JPM), Citigroup and Wells Fargo & Co. (WFC) -- are expected to fell the most pain in their consumer businesses.

Morningstar's Jamie Peters said Regulation E , which goes into effect in August and protects customers from paying overdraft fees, will cost these banks a lot of moneys.

She also expects the provisions of the CARD Act, which revamps credit card laws, to take a toll; along with changes to the treatment of trust preferred securities when calculating capital ratios, an expected increase in deposit insurance expenses, and the Durbin Amendment, which puts limits on interchange fees that can be charged for debit card transactions.