Morgan Stanley: Financial Loser

NEW YORK (TheStreet) -- Morgan Stanley (MS) was the loser among the largest U.S. financial names on Thursday, with shares pulling back 2.5% to close at $18.49.

The broad indexes were relatively flat after Greece initiated a bond swap as part of its second European bailout, through which investors took losses of over 50%, as part of a plan to reduce Greece's debt burden of 350 billion euro by 100 billion euro.

The The KBW Bank Index (I:BKX) was down 1% to close at 44.70, with 21 out of 24 index components seeing declines.

Morgan Stanley's shares have now returned 22.21% year-to-date following a 44% decline in 2011.

The shares now trade for 0.7 times the company's reported Dec. 30 tangible book value of $27.05 and for 10 times the consensus 2012 earnings estimate of $1.90 a share. The consensus 2013 EPS estimate is $2.36.

Bank of America Merrill Lynch analyst Guy Moszkowski sees short-term downside risk for Morgan Stanley investors, heading into the end of the Federal Reserve's latest round of stress tests on March 15.

Moszkowski has a neutral rating on Morgan Stanley, with a price objective of $22, and said in a report on Friday that the stress test results announcement "could indicate no return of capital for MS" in 2012, "which could disappoint some investors." The analyst added that despite the company's "best in class" capital ratios -- including a current Basel III Tier 1 common equity ratio of 8%, increasing to an estimate 10% by the end of this year -- the company's "near term EPS power appears constrained, which will likely prompt MS (and the Fed) to take a more conservative approach" to dividend increases and/or share buybacks.

Moszkowski also thinks some analysts will be lowering their earnings estimates for Morgan Stanley, "over the next few weeks," and is behind the consensus, estimating the company will earn $1.15 a share in 2012.

Interested in more Morgan Stanley? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.