Morgan Stanley: Financial Winner

NEW YORK ( TheStreet) -- Morgan Stanley ( MS) was the winner among the nation's largest banks on Thursday, with shares rising 2% to close at $22.29.

The European Central Bank on Wednesday announced it would cut its main rate for Eurosystem refinancing operations by 25 basis points to 0.50%. Mario Draghi, the president of the European Central Bank, at a press briefing said "our monetary policy stance will remain accommodative for as long as is needed."

Anything that stimulates economic activity in Europe is good news for Morgan Stanley. The investment bank reported that as of March 31, its net risk exposure to "European peripherals," including Greece, Ireland, Italy, Spain and Portugal totaled $5.0 billion. The largest exposure among the peripherals was $2.7 billion in Italy, mainly to non-sovereign entities, followed by $1.7 billion in Spain, nearly all of which was to non-sovereign entities.

Morgan Stanley also reported $2.3 billion in net risk exposure in France.

The ECB move followed a slight but important change in language in the Federal Open Market Committee's statement following its two-day meeting. In its statement on Wednesday afternoon, the FOMC as expected said that the short-term federal funds rate would remain in a range of zero to 0.25%, where it has been since the end of 2008. The Federal Reserve will also continue to make monthly purchases of its monthly purchases of $45 billion in long-term U.S Treasury securities, and $40 billion in agency mortgage-backed securities.

But the FOMC also said the Fed was "prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes."

The language in previous statements didn't include the words "increase or reduce." KBW analyst Brian Gardner in a note to clients late on Wednesday said the change in language indicated that "despite comments from some of the more hawkish Federal Reserve Bank presidents, the FOMC is unlikely to slow the pace of purchases in the near future."

Signs of Stabilizing Employment

The Dow Jones Industrial Average and S&P 500 Index ( SPX.X) each ended with gains of nearly 1%, while the NASDAQ Composite Index was up 1.3%. Investors were in cheerful mood following two economic reports showing positive employment trends, after Wednesday's private-sector employment report from Automated Data Processing showed a significant slowdown in employment growth in April.

The Department of Labor said that first-time unemployment claims for the week ended April 27 totaled 324,000 on a seasonally adjusted basis, declining 18,000 from 342,000 the previous week. This was the lowest initial jobless claims number in over five years. Economists polled by Thomson Reuters had expected new unemployment claims to come in at 345,000.

Another report of an improving employment picture in the United States came from outplacement firm Challenger, Gray and Christmas, which said that layoffs declined to 38,121 in April, which was the lowest number of job cuts since December. During March, there were 49,255 layoffs. Then again, the firm also said that layoffs from financial firms increased, with 34,856 jobs lost during the first four months of 2013, compared to 12,860 a year earlier.

The KBW Bank Index ( I:BKX) was up 1% to close at 56.44, with all but two of the 24 index components showing gains for the session.

Good News for Bank of America

Shares of Bank of America ( BAC) rose slightly to close at $12.19, after Law 360 reported that several investors had dropped their objections to the bank's $8.5 billion proposed settlement in June 2011 of mortgage putback claims related to loans originally securitized by Countrywide Financial.

Bank of America acquired Countrywide in 2008. Law 360 reported that investors dropping their objections to the June 2011 proposed settlement this week included the Federal Home Loan Bank of San Francisco on Wednesday, "joining several state and union pension funds that bowed out the day before."

Bank of America set aside the cash for the settlement in the second quarter of 2011, along with an additional $5.5 billion for other mortgage repurchase claims.

-- 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 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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