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NEW YORK (
Morgan Stanley(MS - Get Report) was the winner among stocks of large U.S. banks on Wednesday as shares rose nearly 1% to close at $28.25.
The New York-based investment bank was a positive outlier on a mostly weak day for financial names as UBS analyst Brennan Hawken Tuesday upgraded Morgan Stanley to `buy' from `neutral,' while raising his 12-month price target to $33 from $28.00.
"We have been increasingly positive on MS given its progress transitioning to a more wealth management driven business model, and our initial [Financial Advisors] Survey reinforced an improving outlook for continued expansion of wealth management profit margins and earnings power," Hawken wrote in a note to clients.
The analyst raised his 2013 earnings estimate slightly to $1.80 a share from $1.77, and raised his 2013 EPS estimate to $2.80 from $2.60, "driven by a lower compensation ratio and higher [net interest income] in the [Global Wealth Management] segment."
Long-term interest rates have been rising in anticipation of a decline in
Federal Reserve purchases of long-term bonds which have been running at a rate of $85 billion a month since last September. The market yield on 10-year treasury bonds has increased to 2.92% from 1.70% at the end of April.
Hawken added that his firm expects "average yields will begin to increase modestly in 2014, roughly in line with our [net interest margin] outlook for the universal banks."
Morgan Stanley during the second quarter completed its purchase of
Citigroup's(C) remaining 35% stake in the companies' retail brokerage joint venture, for $4.7 billion. A more even split in revenue between wealth management and asset management, "should translate into a higher multiple" for Morgan Stanley's stock, according to Hawken.
Morgan Stanley's shares trade for 10.9 times the consensus 2014 EPS estimate of $2.59 among analysts polled by Thomson Reuters. The consensus 2015 EPS estimate is $2.95.
"Separately, we are raising our 2014 estimate for [<b>Bank of America</b> <span class=" TICKERFLAT">(<a href="/quote/BAC.html">BAC</a> - <a href="http://secure2.thestreet.com/cap/prm.do?OID=028198&ticker=BAC">Get Report</a><a class=" arrow" href="/quote/BAC.html"><span class=" tickerChange" id="story_BAC"></span></a>)</span>] to $1.47 from $1.45, driven by improved expectations for their wealth management business." Hawken wrote.
KBW Bank Index(I:BKX) pulled back slightly to close at 63.97 with all but eight of the 24 index components ending with declines.