NEW YORK ( TheStreet) - Morgan Stanley ( MS) is a global financial services firm that is engaged in four distinct business areas: investment banking, sales and trading, wealth management for high net worth individuals and asset management.It competes with other global financial services firms like Goldman Sachs ( GS), Citigroup ( C), UBS ( UBS) and Credit Suisse ( CS). We believe that sales and trading is the largest driver of value for Morgan Stanley. We estimate that bonds, currencies and commodities trading constitutes around 26% of our $21.54 price estimate for Morgan Stanley's stock, with equities trading contributing around 20%.
The outlook for 2011 looks positive for this division with Morgan Stanley raising $1 billion for its first corporate mezzanine fund. This makes Morgan Stanley only the fifth firm since January 2009 to launch a mezzanine fund in excess of $700 million. The fund looks to focus primarily on fixed income securities issued by middle market companies where the company believes that there will be a supply/demand imbalance for capital over the next few years leading to higher yields on the bonds issued by this segment. For the asset management division, the fee as % of Assets Under Management (AUM) decreased from 0.7% in 2005 to 0.2% in 2009, with Morgan Stanley cutting fees to hold on to clients in an increasingly competitive market. However, it increased to 0.5% in 2009 and, going forward, we expect it to further increase to around 0.6% in the coming years, with the economic recovery increasing commissions. If the company reports strong results for the Asset Management division in the first few quarters of 2011, there could be upside to our forecasts. If the fee improves from 0.6% to around 0.8% by the end of our forecast period, it would mean around 5% upside to our current price estimate for Morgan Stanley's stock. Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.