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Morgan Stanley: Financial Winner

The main factors in the earnings improvement were the continued decline in credit costs, as well as an increase in noninterest income, "driven primarily by higher gains on loan sales (up $2.4 billion, or 132.4 percent, over fourth quarter 2011), increased trading revenue (up $1.9 billion, or 75.3 percent), and reduced losses on sales of foreclosed property (down $1.2 billion, or 72 percent)," according to the FDIC.

The only real black eye for the industry was the continued narrowing of the net interest margin, which is the difference between the average yield on loans and investments and the average cost for deposits and borrowings. Most banks have already realized most of the benefit of historically low funding rates, while assets continued to reprice. The aggregate fourth-quarter net interest margin was 3.32%, declining from 3.57% a year earlier.

Morgan Stanley

Morgan Stanley shares bounced back somewhat Tuesday after dropping 7% Monday on concerns raised by Italian election results. Morgan Stanley is often the most sensitive U.S. financial name when the market reflects worries tied to European sovereign debt. Exchange traded funds that track the Italian and Spanish stock markets were also slightly higher Tuesday.

Shares of Morgan Stanley have returned 17.36% year-to-date, following a 26.37% return during 2012. The shares trade for 72% of book value, according to Thomson One Analytics, and for 10.7 times the consensus 2013 earnings estimate of $2.10 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $2.53.

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."

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

-- 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 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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