Morgan Stanley (NYSE:
MS) is expected to report their Q1 2010 results after the market closes on April 20, 2010. 1Q 2010 is expected to be decidedly mixed with weaker investment banking result being offset by reasonable trading and asset management revenues. Despite already existing solid and building pipelines, ECM and M&A activities are expected to slow down sharply in this quarter compared to the previous. Furthermore, trading results are likely to improve substantially from the weak Q409 results, but will remain much below the early – 2009 levels, with strong results in rates, credit, and mortgages to be offset by weakness in commodities and currencies. In addition, asset and wealth management should benefit from slightly higher asset values. As for capital, it is expected to continue building for the foreseeable future due to the pending regulatory classification on new capital ratios.
Morgan Stanley Dean Witter is a preeminent global financial services firm that maintains leading market positions in each of its three primary businesses: securities; asset management; and credit services. The company combines global strength in investment banking and institutionalsales and trading with strength in providing full-service and on-linebrokerage services, investment and global asset management services and,primarily through its Discover Card brand, quality consumer creditproducts.
As for Q4 2009, the results looked somewhat disappointing. The pre-tax profits came in at $0.7 billion on a state basis and an EPS of $0.14 from continued operations. The company reported overall revenues at $6.8 billion due to poor performance in the Fixed Income division where revenues amounted to just $1.2 billion. Equities revenues amounted to $922 million, with the Investment Banking comp ratio standing at 57% on a state basis and revenue for the same being strong at $1.5 billion for Q4 2009. ECM reported strong earnings, with revenue at $0.63 billion and DCM was up just 6%. The aforementioned figures are a testimony to the fact that Morgan Stanley still stands tall and is not broken, with ROEs likely to reduce in 2010.
Analysts' estimates for Q1 2010 range from a low of $0.44 to a high of $0.60, compared to a consensus estimate of $0.60, with number of estimates being 21 and the co-efficient variance 16.15. Within Morgan Stanley, global wealth management (MSSB JV) is expected to show incremental progress on its integration initiatives and revenue trends also should be somewhat improved sequentially. Despite weak expected 1Q results, investment banking pipelines do remain robust and forecasts for advisory revenues and ECM revenues are $275million and $300 million respectively. Fixed income, credit, commodities, and currency (FICC) revenues will rebound from a weak Q4 2009 and now that the anticipated hiring plans that were previously announced are now complete, revenue will increase gradually, with a more noticeable positive surprise expected in 2H 2010. As for Morgan Stanley's wealth management joint venture with Citi, improving results are expected.
The stock closed at $ 31.15, up 0.55% on April 9, 2010. Most analysts' rate this stock as a relative Overweight with a price target of $36. In the long run, Morgan Stanley's ability to reshape the business mix and make the entity more stable, less-capital intensive earnings streams and successful execution of the firm's many initiatives should result in a somewhat higher valuation.
