Morgan Stanley: Financial Winner

NEW YORK ( TheStreet) -- Morgan Stanley ( MS) was the winner among the largest U.S. banking names on Monday, with shares rising 3% to close at $20.06.

The Dow Jones Industrial Average and the S&P 500 index saw slight gains, while the Nasdaq was up 1%, after Apple ( AAPL) broke the tech mold by announcing it would put some of its $100 billion in cash to work, by deploying $45 billion over the next three years, through a quarterly dividend of $2.65 a share and $10 billion in share buybacks.

The KBW Bank Index ( I:BKX) rose slightly to close at 49.97.

Morgan Stanley's shares have now risen 33% year-to-date, following a 44% drop during 2011.

The shares trade for just 0.6 times tangible book value, according to Worldscope data provided by Thomson Reuters, and for 12 times the consensus 2012 earnings estimate of $1.88 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.35

Following the completion of the Federal Reserve's annual bank holding company announced last Tuesday that the regulator had no objection to the company's "2012 capital plan, including the potential cash acquisition of an additional 14 percent of Morgan Stanley Smith Barney and ongoing payment of current common and preferred dividends."

Morgan Stanley is currently paying a quarterly dividend of five cents on its common shares.

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

Shares of Citigroup rose over 1% to close at $37.17.

The shares have now risen 41% year-to-date, following a 44% drop during 2011.

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The Federal Reserve late on Friday released corrected results to its Comprehensive Capital Analysis and Review 2012, to "correct computational errors for some loss rates and levels," for Citi, Ally Financial, Bank of America ( BAC), MetLife ( MET), and Wells Fargo. Bottom-line stress test results were unaffected, with Citigroup -- despite seeing the most significant corrections by the Fed -- still having its submitted plan to return capital to investors through a dividend increase and share buybacks rejected by the regulator.

The Federal Reserve's 2012 stress tests were based on a harsh economic scenario, with real U.S. GDP contracting "sharply through late 2012, with the unemployment rate reaching a peak of just over 13 percent in mid-2013," while also assuming "that U.S. equity prices fall by 50 percent from their Q3 2011 values through late 2012 and that U.S. house prices fall by more than 20% through the end of 2013." In addition, under the Fed's adverse scenario, "foreign real GDP growth is also assumed to contract, with growth slowdowns in Europe and Asia in 2012."

In order to pass the stress tests, the results had to show that the group of 19's estimated Tier 1 common equity ratios would remain over 5% under the adverse economic scenario.

In order to have their capital plans approved, the companies' estimated Tier 1 capital ratios at the end of 2013 would have to be above 5%, "with all proposed capital actions through Q4 2013."

According to the Fed's revised stress test results, Citi would see $19.6 billion in loan losses through the end of 2013, which is slightly reduced from the original result of $19.7 billion in loan losses. The company's estimated loan loss rate under the adverse economic scenario would be 11.3%, corrected from 11.2%, but the loss rate on first-lien mortgage loans declined to 9.3% rom 9.7%.

Under the revised results, the Federal Reserve continued to estimate that Citigroup would have a Tier 1 common equity ratio of 5.9%, falling to 4.9% at the end of 2013 if the company were to follow through with its submitted, and rejected, capital plan.

Citigroup's shares now trade for 0.7 times tangible book value, according to HighlineFI, and for nine times the consensus 2012 earnings estimate of $3.97, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $4.78.

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

Bank of America was Monday's loser among large financials with shares sliding 3% to close at $9.53, after briefly passing the $10 mark earlier.

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The shares have now returned 72% year-to-date, following last year's 58% plunge.

According to the Federal Reserve's revised stress test figures, Bank of America's estimated loan losses under the adverse economic scenario remained $70.1 billion through the end of 2013, with losses in the "other loans" category increasing to $1.8 billion from $1.7 billion, although the corrected loss percentage estimate for this loan type actually declined to 1.9% from 2.1%.

Bank of America didn't include an increased return of capital to shareholders, through dividend increases or common share buybacks, in its capital plan submitted to the Federal Reserve, and passed the stress tests, with an estimated Tier 1 common ratio of 5.7%, under the adverse economic scenario, rising to an estimated 5.9% at the end of 2013.

The shares now trade for 0.8 times tangible book value and 14 times the consensus 2012 EPS estimate of 69 cents. The consensus 2013 EPS estimate is $1.19.

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

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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.