Will Morgan Stanley (MS) Stock be Helped Today as it Looks to Settle Mortgage Investigation?

NEW YORK (TheStreet) -- Shares of Morgan Stanley (MS) are flat at $38.99 in pre-market trading after it was reported that the financial services company may settle a mortgage investigation early next year, the New York Times reports.

Since the financial crisis, Wall Street firms have argued that they were victims, just like everybody else, of the bad mortgages that were churned out by subprime lenders like Countrywide and New Century. Now, though, a trove of emails and confidential documents, filed in court, reveal the extent to Morgan Stanley actively influenced New Century's push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments, the Times said.

"Morgan Stanley is involved in almost every strategic decision that New Century makes in securitized products," a Morgan Stanley internal report from late 2004 said, referring to the loans the bank packaged into mortgage bonds, according to the Times.

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The Justice Department is currently examining the relationship between New Century and Morgan Stanley, and the bank's sale of mortgage securities in the run-up to the financial crisis, according to a person briefed on the matter. After winning tens of billions of dollars from other banks, the Justice Department has turned its focus to Morgan Stanley, and is aiming to reach a settlement early next year, according to the person, the Times said.

Separately, TheStreet Ratings team rates MORGAN STANLEY as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate MORGAN STANLEY (MS) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and impressive record of earnings per share growth. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MS's revenue growth has slightly outpaced the industry average of 1.4%. Since the same quarter one year prior, revenues slightly increased by 4.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 88.63% and other important driving factors, this stock has surged by 25.15% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Capital Markets industry and the overall market, MORGAN STANLEY's return on equity is below that of both the industry average and the S&P 500.
  • The gross profit margin for MORGAN STANLEY is currently lower than what is desirable, coming in at 29.42%. Regardless of MS's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 17.83% trails the industry average.
  • You can view the full analysis from the report here: MS Ratings Report
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