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Morgan Stanley Rises: Financial Winner

The market yield for 10-year U.S. treasury bonds has risen over 100 basis points since the end of April, as investors have anticipated a tapering of monthly bond purchases by the Federal Reserve, which have continued at a pace of $85 billion each month since last September.

The widening yield curve will over time have a positive effect on net interest margins. In the meantime, the banking industry's unrealized gains on available-for-sale securities, which had risen steadily as long-term rates declined, nearly evaporated during the second quarter.

Unrealized gains on AFS securities were down by $51.1 billion, or 89% from the previous quarter, according to the FDIC. " Unrealized gains and losses on available-for-sale securities do not affect current earnings, but they do have implications for future earnings if the securities are sold," the agency said.

Credit leverage continued to be a major theme for the industry, with combined provisions for loan loss reserves declining to $8.6 billion, from $11 billion the previous quarter and $14.2 billion a year earlier. The FDIC said that provisions for reserves were at their lowest point since the third quarter of 2006.

The industry's combined loan loss reserves declined by $6.4 billion during the second quarter.

The FDIC said that banks' combined non-interest income grew to $66.9 billion in the second quarter from $66.5 billion the previous quarter and $60.2 billion a year earlier.

Banks continued to see success in their cost-cutting efforts, with the industry's combined efficiency ratio improving to 58.76% during the second quarter, from 58.92% during the first quarter and 61.29% during the second quarter of 2012. The efficiency ratio is, essentially, the number of pennies of expenses incurred for each dollar of revenue.

Morgan Stanley

Morgan Stanley's shares have returned 37% this year following a return of 28% for 2012. The shares trade just below their reported June 30 tangible book value of $26.27, and for 10 times the consensus 2014 earnings estimate of $2.58 a share, among analysts polled by Thomson Reuters. The consensus 2015 EPS estimate is $2.92.

Please see TheStreet's earnings coverage for a review of Morgan Stanley's second-quarter results, which included the firm's acquisition of Citigroup's (C) remaining stake in the companies' retail brokerage joint venture.
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