Bank Stocks Stall: Financial Losers

NEW YORK ( TheStreet) -- Morgan Stanley ( MS) was the loser among the largest U.S. banks on Monday, with the shares down 2% to close at $22.31.

The broad indices ended flat, as investors paused after last week's rally.

The Census Bureau on Monday said durable-goods orders rose 4.6% in December after rising 0.7% in November, with much of the increase coming from orders from defense firms and commercial-aircraft manufacturers. Economists, on average, were expecting orders to rise 1.8% in December, according to Briefing.com.

Excluding transportation orders, durable-goods orders rose 1.3% during December, after advancing 1.2% the prior month. It was the fourth straight month of gains exceeding 1%. The consensus estimate was for orders to increase by 0.7%.

The National Association of Realtors said that pending home sales in January declined 4.3% from December, after rising 1.7% in November. Sales were up 6.9% year-over-year. NAR chief economist Lawrence Yu said "the supply limitation appears to be the main factor holding back contract signings in the past month. Still, contract activity has risen for 20 straight months on a year-over-year basis."

Turning back to the stock market, research firm FactSet said early Monday that "of the 134 S&P 500 companies that have reported earnings to date for the fourth quarter, 69% have reported earnings above estimates," which was equal to the average number of names beating the consensus estimates over the previous four quarters. However, "in terms of revenues, 64% of companies have reported sales above estimates," the firm said, which is "well above the average of 50% recorded over the past four quarters."

The KBW Bank Index ( I:BKX) was down slightly to close at 53.89, with the 24 index components evenly split.

Two Important Dates for Bank Stock Investors


The Federal Reserve on Monday announced plans to release the results of its latest annual round of supervisory bank stress tests on March 7, with released data including "capital ratios, revenue and loss estimates under a severely adverse scenario and assuming a common set of capital actions that is used in the analysis of all of the firms." More importantly to bank stock investors, the regulator on March 14 will announce the results of its annual Comprehensive Capital Analysis and Review (CCAR), which will apply the large banks' capital plans to the severely adverse economic scenario.

That means March 14 is likely to include announcements from many of the best-known banking names of Federal Reserve approval for dividend increases and share buybacks, running through the first quarter of 2014.

Both announcements will be made at 4:30 p.m. EST.

Morgan Stanley


Morgan Stanley's shares have now returned 17% this year, following a 28% return last year. The shares declined 44% during 2011. Putting those numbers together, the shares are down 13% since the end of 2010.

The shares trade for 0.8 times their reported Dec. 31 tangible book value of $26.81, and for nine times the consensus 2014 earnings estimate of $2.49 a share, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.04.

Deutsche Bank analyst Matt O'Connor has a "hold" rating on Morgan Stanley, estimating the company will earn $2.01 a share this year, with EPS rising to $2.47 in 2014. The analyst on Friday said there were "several positives" for the company in the fourth quarter, including a 17% margin in its wealth-management business, "driven by broad-based revenue growth quarter over quarter and lower expenses," and a 26% sequential increase in investment banking fees.

Morgan Stanley reported several other positive developments, saying it had already met its goal to reduce its fixed-income risk-weighted assets to $280 billion from $390 billion at the end of the third quarter of 2011, and was on track to lower the RWA to $255 billion by the end of 2013, with RWA eventually declining to less than $200 billion by the end of 2014, freeing up plenty of capital for an eventual return to investors.

The company also said it would accelerate its purchase of the remaining stake in its brokerage joint venture with Citigroup ( C), to complete the purchase by the end of 2013. Having 100% ownership of the brokerage will enable "greater order flow capture," increase deposit funding and lower expenses by eliminating the joint venture agreements and expenses, according to the company.

Morgan Stanley in 2012 reduced its workforce by 7% and said it planned to cut staffing by another 10% in 2013.

O'Connor said the company's goal of improving its return on equity to 9% from a slightly negative number in 2012, "implies EPS approaching $3 before capital deployment (vs. our 2015E of $2.88, which includes some share buybacks)."

MS Chart MS data by YCharts

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

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

>Contact by Email.

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.

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