Morgan Stanley said in its earnings release in January that the company had already met its goal to reduce fixed-income risk-weighted assets to $280 billion from $390 billion at the end of the third quarter of 2011, and was on track to reduce RWA to $255 billion by the end of 2013. Morgan Stanley projects that RWA will decline to less than $200 billion by the end of 2014, setting up an increased return of capital to investors.
The company also said it would accelerate its purchase of the remaining stake in its brokerage joint venture with
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, to take full ownership of the unit by the end of 2013. Morgan Stanley said that having full ownership of the brokerage will enable "greater order flow capture," increase deposit funding and lower expenses by eliminating the joint venture agreements.
Wells Fargo analyst Mathew Burnell rates Morgan Stanley "market weight," with a valuation range of $21.50 to $23.50, estimating the company will earn $2.00 a share this year, with EPS increasing to $2.30 in 2014.
The analyst in a report on Jan. 18 called Morgan Stanley's strategic plan "a clear path to improved returns," but said that "hard work remains."
CEO James Gorman said during the company's earnings conference call in January that Morgan Stanley's various initiatives and "returning excess capital" could push the company's return on tangible equity to 12%. But according to Burnell, the company's target return will "only meet its cost of capital, suggesting valuation near tangible book value in more than a year."
Morgan Stanley's fourth-quarter results also suggested that "revenue improvement is needed as much as capital efficiency to improve returns in the business," Burnell wrote.
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-- Written by Philip van Doorn in Jupiter, Fla.