The broad indexes ended mixed following the holiday weekend, with weak trading volume, after the Institute for Supply Management said that its manufacturing index came in at 49.6 in August. A reading below 50 indicates a shrinking manufacturing sector.
The Census Bureau announced that construction spending during July declined 0.9% from June, to a seasonally adjusted annualized pace of $834.4 billion, which was 9.3% higher than the estimate in July 2011.
The KBW Bank Index (I:BKX) rose slightly to close at 47.24, with 14 of the 24 index components rising for the session.Morgan Stanley's shares have now returned 7% year-to-date, following a 44% decline during 2011. The shares trade for half their reported June 30 tangible book value of $31.02, and for eight times the consensus 2013 EPS estimate of $1.94. The consensus 2012 EPS estimate is 90 cents. The company currently owns 51% of the Morgan Stanley Smith Barney joint venture, with Citigroup (C) holding 49%. Morgan Stanley has the option to purchase the remaining stake in the joint venture over a three year period beginning this year, and in May announced plans to purchase an additional 14% stake, subject to a valuation that was to be determined over a 90-day period, which last Wednesday was extended until Sept. 10. Well Fargo analyst Matthew Burnell, who rates Morgan Stanley "Market Perform," with a valuation range of $13 to $15, said last week that the Morgan Stanley Smith Barney joint venture was being appraised by "Perella Weinberg Partners LP following valuations by the two companies that resulted in a wide difference of opinion on the value of MSSB." The analyst went on to say that because Citigroup had previously valued its stake in the joint venture at roughly $11 billion, while Morgan Stanley had valued the stake at about $4.4 billion, "the potential pretax writedown of Citi's stake could exceed $6B if MS' valuation is accepted," Burnell believes "a more likely writedown is in the range of about $4B (before tax) based on current retail broker comps and the MSSB contribution to MS (adjusted for elevated noncore expenses in MSSB) compared to our current estimate of Citi's pretax profit of $4.2B."
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