While investors fretted following S&P's downgrades of 11 Spanish Banks, after cutting Spain's sovereign rating last week, Morgan Stanley's shares rose 2%, despite reporting $1.3 billion in net exposure to Spanish debt as of March 31.
NEW YORK ( TheStreet) -- Morgan Stanley ( MS) was the winner among the largest U.S. financial names on Monday, with shares rising 2% to close at $17.28. The broad indexes saw slight declines, after Standard & Poor's cut its long-term and short-term debt ratings for 11 Spanish banks, following the agency's downgrade of Spain's sovereign debt to "BBB+A-2" from "A/A-1" last week. S&P said that the sovereign rating cut had "direct negative rating implications for the banks that we rate at or above the sovereign rating on Spain," and that "the factors behind the downgrade of Spain could have potentially negative implications for our view of the economic risk and industry risk affecting the Spanish banking industry." With six Spanish banks on "credit watch negative," more downgrades could be coming, as S&P expects "either resolve or update the CreditWatch placements."
The KBW Bank Index ( I:BKX) pulled back over 1% to close at 48.28, with all 24 index components showing declines for the session. In its first-quarter earnings announcement on April 19, Morgan Stanley reported $1.3 billion in net exposure to Spanish paper as of March 31, although sovereign exposure to Spain was a negative $155 million. Morgan Stanley's shares have returned 15% year-to-date, following a 44% decline during 2011.
The shares trade for just 0.6 times their reported March 31 tangible book value of $27.37, and for seven times the consensus 2013 earnings estimate of $2.44, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.44. KBW analyst David Konrad rates Morgan Stanley "Market Perform," with a $23 price target, and said on April 20 following the company's first-quarter earnings announcement that "MS continues to deliver impressive results from its equity platform and non-comp expenses fell below our estimate for two consecutive quarters. However, with the backdrop of dramatically improved credit spreads in the first quarter, the sustainability of Fixed Income, Currency and Commodities revenues is uncertain." Interested in more on Morgan Stanley? See TheStreet Ratings' report card for this stock.