NEW YORK (
has underperformed many of its competitors in recent weeks, suggesting there may be a short-term buying opportunity.
Based on Friday's close at $27.41, Morgan Stanley shares were down 7.4% year-to-date, lagging most other big banks, including
Bank of America
(up 7.4%) and
shares have fallen 7.5% since the start of 2010, but the stock has done better than Morgan Stanley since the start of February, rising 5% so far this month, while Morgan Stanley have shares advanced just 2.4%.
Richard Bove, analyst at Rochdale Securities, believes recent decisions by the bank's real estate unit may be the reason.
The Wall Street Journal
the bank may abandon a $2.4 billion Japanese hotel chain it acquired in 2007 when debt payments come due in April. The bank abandoned another 2007 property investment, its $6.5 billion purchase of Crescent Real Estate, in November.
"If we were dealing two years ago and one of these major companies said they were going to walk away from their loans because the value of the loan on the books is below that of the debt and therefore they actually make money by walking away," Bove says. "People would say 'What about the reputational risk? What about the counterparties? What about the people who want to do business with this company in the future who can't trust it to stand behind the commitments that it's made.'"
Bove adds that he thinks the decision is a mistake even today, despite the convenient excuse that the crisis has provided for borrowers to shirk their obligations.
A Morgan Stanley spokeswoman declined to comment.
Bove also says he has been hearing anecdotally from certain banks that the trading environment has been weak, which may explain why JPMorgan and Goldman Sachs, along with Morgan Stanley, have lately underperformed Citigroup,
and Bank of America, which all rely less heavily on trading.
Despite his concerns, Bove retains a buy rating on Morgan Stanley, noting that despite his concerns about the impact of any real estate decisions on the overall company's reputation, the effect on earnings will be minimal.
I am younger than Bove, and while I find his concern about Morgan Stanley's reputation admirable, I have a hard time believing anyone cares about these things on Wall Street anymore, if they ever did.
There may be other reasons the stock has lagged a bit of late. The bank has lately come under criticism from shareholders for overpaying its employees, according to media reports. New CEO James Gorman has vowed he will get this under control.
Gorman himself may be part of the problem. He is new, after all, and there are some concerns he will not hit it off with the bank's traders and investment bankers, since he has a wealth management background.
None of this seems serious. Essentially, all the big banks are quite similar and Morgan Stanley received upgrades from five analysts in January. It is unlikely to meaningfully lag its peers for long. And the recent pullback has brought its forward price-to-earnings ratio, based on estimates for fiscal 2011, down to 7.7X, putting it roughly on a par with Goldman Sachs (7.6X) and rendering it cheaper on that basis than Bank of America (8X), Citigroup (10X) and JPMorgan (8.4X).
Written by Dan Freed in New York