Morgan Stanley: Financial Winner

NEW YORK ( TheStreet) -- Morgan Stanley ( MS) was the winner among the largest U.S. financial names on Wednesday, with shares rising over 4% to close at $18.22.

The broad indexes all saw gains of over 1%, mainly on rumors that China's first-quarter gross domestic product report tonight could show a surprisingly strong annualized growth rate of 9%.

Investors also reacted positively to comments on Wednesday night by Federal Reserve Vice Chair Janet Yellin, describing a "subdued inflation environment," while saying she expected "the economic recovery to continue--indeed, to strengthen somewhat over time," and making a strong case that "a highly accommodative policy stance to be appropriate in present circumstances."

The KBW Bank Index ( I:BKX) rose 2% to close at 48.69, with all 24 index components showing gains of at least 1%.

Getting back to Morgan Stanley, the investment bank's shares have now returned 21% year-to-date, following a 44% decline during 2011.

The shares trade for just 0.7 times the company's reported Dec. 30 tangible book value of $27.95, and for eight times the consensus 2013 earnings estimate of $2.31 a share, among analysts polled by Thomson Reuters. The consensus 2012 earnings per share estimate stands at $1.93.

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Moody's Investor Service is expected to decide by May 12 whether or not to downgrade its ratings for 17 global financial companies, including Morgan Stanley.

Bank of America Merrill Lynch analyst Guy Moszkowski on Thursday said he was "most cautious" about the effect of the possible downgrades on Morgan Stanley and Citigroup ( C), since he expects "derivative counterparties will likely remain highly credit sensitive, and may substantially reduce activity with firms at risk of "Baa"-rating s ."

Calling a three-notch downgrade to a "Baa" rating for Morgan Stanley a "worst case," Moszkowski said a two-notch downgrade was "most likely." He added that the company "could lose substantial share in higher margin/ longer duration derivatives business if the firm is without an A-rated backstop."

Moszkowski has a neutral rating on Morgan Stanley, with a $23 price target, and estimates the company will post first-quarter earnings of 35 cents a share, when it reports its financial results on April 19. The consensus first-quarter EPS estimate is 42 cents.

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


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

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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 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.