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TheStreet Open House

Morgan Stanley Leads Year-end Bank Stock Party

NEW YORK ( TheStreet) -- Morgan Stanley (MS) on Tuesday led the banking sector in fine style during a strong year-end session, with shares rising 1.7% to close at $31.36.

The broad indices all tacked on solid year-end gains.  The KBW Bank Index (I:BKX) followed suit, rising 0.5% to close the year at 69.26, with all but three of the 24 index components showing gains.  The KBW Bank Index rose 35% during 2013.  That may not be such a surprise, considering that the S&P 500 rose 30% during 2003 (its best performance since 1997), however, the KBW Bank index's stellar year followed a 30% gain in 2012, when the S&P 500 was up "only" 13%.

In economic news on Tuesday, the S&P Case-Shiller 20-City Composite Index for U.S. home prices for October showed an increase of 13.7% from October 2012, for its largest year-over-year increase since February 2006.

The Conference Board reported December consumer confidence shot up to 78.1, up from a prior reading of 70.4. Economists polled by Reuters had on average estimated an increase to 76.0.

Also on Tuesday, The Institute for Supply Management said its "December Chicago Business Barometer softened to 59.1 from 63.0 in
November, the second consecutive monthly decline following October's surge to 65.9, the highest since March 2011."  Economists had expected the Chicago PMI for December to come in at 60.8.  A figure above 30 indicates expansion.

Despite the decline in the Chicago PMI, "this marks the strongest three months in more than two years," according to Sterne Agee chief economist Lindsey Piegza.

In a client note on Tuesday, Piegza wrote that the Case-Shiller number, along with the report on Monday that pending home sales increased during November, following a five-month decline, shows the U.S. housing market "appears to be on a positive track as we turn the corner."

Major housing market concerns heading into 2014 include rising mortgage loan rates and a tempering of construction activity by home builders, according to Piegza.

Morgan Stanley

Shares of the investment bank have returned 65% this year, following a 28% return during 2012.  The shares trade for 1.2 times their reported Sept. 30 tangible book value of $26.96.  The shares trade for 12.7 times the consensus 2014 earnings estimate of $2.48 a share, among analysts polled by Thomson Reuters, and for 10.6 times the consensus 2015 EPS estimate of $2.95.

Please see TheStreet's earnings coverage for Antoine Gara's detailed discussion of the boost to Morgan Stanley's bottom line brought about by the company's assumption of 100% ownership of its former retail brokerage joint venture with Citigroup (C).

With an estimated Basel III Tier 1 common equity ratio of 10.8% as of Sept. 30, Morgan Stanley appears primed for a significant deployment of excess capital following the Federal Reserve's next annual round of stress tests and capital plan reviews in March.

Deutsche Bank analyst Matt O'Connor on Nov. 1 estimated Morgan Stanley would be approved to deploy $3.355 billion in excess capital through dividends and share buybacks from the second quarter of 2014 through the first quarter of 2015.  O'Connor estimates the combined capital deployment will be roughly 65% of Morgan Stanley's earnings for the period.  That's a major increase from an estimated capital deployment of $800 million, or 18% of earnings, from the second quarter of 2013 through the first quarter of 2014.

The following chart shows Morgan Stanley's performance during 2013 against the KBW Bank Index, the S&P 500 and the Dow Jones Industrial Average :

MS Chart data by YCharts

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 TheStreet.com 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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