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) --

Morgan Stanley

(MS) - Get Morgan Stanley Report

is doing its best to regain its status as a legitimate rival to

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

, and, at least in this latest quarter, analysts seem to be affording the number two securities firm a fair amount of respect.

"In the quarter-to-quarter swings that see outperformances by

Morgan Stanley and

Goldman Sachs over one another depending on market conditions and idiosyncratic factors, the

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fourth quarter has emerged in favor of

Morgan Stanley," wrote Barclays Capital analyst Roger Freeman in a research note published Friday.

Freeman noted "better revenue comparisons...across the core institutional businesses" for Morgan Stanley, and unlike Bernstein Research analyst Brad Hintz, Freeman did not appear to be buying Goldman's explanation that its weak fourth quarter trading revenues in fixed income was owing to "seasonal weakness," typically associated with the fourth quarter.

"Our channel checks suggest that the quarter was not overwhelmingly weak from an activity perspective. In fact, the quarter started our reasonably strong when compared to the 3Q overall," Freeman argues in his report.

On the other hand, both Freeman and Hintz tend to give Morgan Stanley the benefit of the doubt as it tries to execute a turnaround.

Hintz wrote he was "encouraged by the progress in the firm's global wealth management division," while arguing "the once troubled asset management division continues to show signs of improvement."

Still, Freeman says wants to see "at least a couple of consecutive quarters of outperforming results," before arguing the company's shares should trade at a premium to book value. And he notes Morgan Stanley will still have to show it can improve on the subpar 5.4% return on equity (ROE) it posted in the fourth quarter.

Indeed, ROE will be an increasing focus for analysts for the forseeable future. Analysts are skeptical that banks can return to previous ROE levels in the mid-teens, given tighter regulations and stricter capital rules. Banks, on the other hand, are generally optimistic that they can ramp up ROE markedly from current levels once they "adjust to the new environment," (or add your own euphemism here.)

Goldman's return on tangible equity (ROTE) was 11.8% in the fourth quarter. Goldman executives have said they are targeting 20% ROE notwithstanding the new rules.


Written by Dan Freed in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.