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TheStreet Open House

Morgan Stanley: Unemployment Report Loser

NEW YORK ( TheStreet) -- Morgan Stanley (MS) was the loser among the largest U.S. financial names on Friday, with shares sliding 3% to close at $14.14.

The broad indexes all declined 1% after the U.S. Labor Department reported that the U.S. economy added 80,000 jobs during June, and that the unemployment rate was unchanged, at 8.2%. Economists polled by Thomson Reuters had expected 90,000 jobs to be created during June. The June number improved from revised job creation figures of 68,000 in April and 77,000 in May.

Companies in the "financial activities" category added 5,000 jobs during the month, to 7.7 million, after adding 9,000 jobs the previous month, on a seasonally adjusted basis. The sector added 57,000 full-time positions from June 2011.

Financial subsectors showing strength during June included companies providing credit remediation and related services, which added 4,700 positions. Commercial banks saw full-time equivalent headcount shrink by a seasonally adjusted 2,900 positions during June, following a decline of 1,800 in May, while growing by 1,500 positions year-over-year, to 1.3 million.

The KBW Bank Index (I:BKX) was down 1% to close at 45.19, with 19 out of 24 index components rounding out the week with declines.

Morgan Stanley's's shares have now declined 6% year-to-date, after dropping 44% during 2011.

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The shares for just over half of their reported March 31 tangible book value of $27.37, and for seven times the consensus 2013 earnings estimate of $2.14 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.23.

Analysts expect Morgan Stanley to post second-quarter earnings of 40 cents, compared to a six-cent loss during the first quarter, and a 38-cent loss during the second quarter of 2011. The first-quarter results included a negative impact of $2 billion from debit valuation adjustments as the company's credit spreads tightened. The company reported first-quarter operating earnings -- excluding DVA -- of $1.4 billion, or 71 cents a share. The second-quarter 2011 results included a "negative adjustment of $1.7 billion, or $1.02 a share, related to the conversion of Morgan Stanley's preferred stock in Mitsubishi UFJ Financial Group."

Looking past expected DVA adjustments, since "FASB 157 remains our nominee as the single worst accounting standard ever," Oppenheimer analyst Chris Kotowski on June 24 lowered his second-quarter earnings estimate for Morgan Stanley to 23 cents from 60 cents, saying his firm had "taken our investment banking fee revenue assumption down from $1.3B to $1.0B," while also cutting "our principal transactions revenue from $3.4B to $2.6B."

Kotowski added that "our comp ratio assumption is raised given that the total dollars of compensation seems to hit a floor around $3.7B."

The analyst rates Morgan Stanley "Outperform," with a $28 price target, while matching the consensus full-year EPS estimate of $1.23 for 2012, and estimating earnings of $2.51 a share during 2013.

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

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

>Contact by Email.

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.

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