Morgan Stanley (MS) Could Run if French Exposure Bests Expectations - Barron's
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Morgan Stanley (NYSE: MS) may be ripe for the picking ahead of its earnings report despite potential issues from European exposure.
According to a report in Barron's over the weekend, Morgan Stanley's stock price, bond value, and cost to insure against credit default suggest real issues at the institution. Barron's said the most overblown issues have since improved, but shares are still down well over 35 percent on the year.
The publication previously called Morgan Stanley an attractive buy given it's stable business mix, improving wealth-management unit, and efforts to reinforce client-focused trading. But until more color is issued with it's earnings report about the statues of European exposure, none of the upside will begin to penetrate the stock.
Morgan Stanley initially saw a drop from a delayed regulatory filing which cited $44.7 billion in "total cross-border exposure to France." Bernstein said the headline was misleading, being a gross of overnight trades and client deposits. The number excluded items like hedges and collateral. Bernstein believes Morgan Stanley's net exposure to France is a much more appealing $2 billion or less.
Morgan Stanley execs have been telling hedge-fund clients and investors the bank's exposure to France is just about nothing.
Bears on Morgan Stanley say net exposure is only as good as counterparties to hedges and collateral quality. Barron's suggested any 2008-style crisis with similar markdowns would null any assumptions.
Pros on Morgan Stanley include an increase in liquid assets from $130 billion in 2008 to $182 billion recently. Deposits and equity account for 25 percent of funding, up from 10 percent at the end of 2007.
Expected out on Wednesday, investors in Morgan Stanley are looking to eke out a gain for its third quarter. Barron's notes tangible book value points to Morgan Stanley being worth about twice as much dead as alive, with a current ratio at about 0.57. Numbers for European rivals Deutsche Bank (NYSE: DB) and Barclays (NYSE: BCS), however, are at or near similar levels.
Should Morgan Stanley deliver 10 percent return-on-equity on $30 year-end tangible book value, earnings would equate to $3 per share, translating to a P/E ratio of 5x. Current expectations have Morgan Stanley earning 88 cents in fiscal 2011, and $2.31 in fiscal 2012.
While Morgan Stanley investors have a lot to consider, if earnings pan out and exposure is limited, it might just be a bonanza of upside heading into 2012.
Morgan Stanley shares are 0.7 percent lower Monday.
According to a report in Barron's over the weekend, Morgan Stanley's stock price, bond value, and cost to insure against credit default suggest real issues at the institution. Barron's said the most overblown issues have since improved, but shares are still down well over 35 percent on the year.
The publication previously called Morgan Stanley an attractive buy given it's stable business mix, improving wealth-management unit, and efforts to reinforce client-focused trading. But until more color is issued with it's earnings report about the statues of European exposure, none of the upside will begin to penetrate the stock.
Morgan Stanley initially saw a drop from a delayed regulatory filing which cited $44.7 billion in "total cross-border exposure to France." Bernstein said the headline was misleading, being a gross of overnight trades and client deposits. The number excluded items like hedges and collateral. Bernstein believes Morgan Stanley's net exposure to France is a much more appealing $2 billion or less.
Morgan Stanley execs have been telling hedge-fund clients and investors the bank's exposure to France is just about nothing.
Bears on Morgan Stanley say net exposure is only as good as counterparties to hedges and collateral quality. Barron's suggested any 2008-style crisis with similar markdowns would null any assumptions.
Pros on Morgan Stanley include an increase in liquid assets from $130 billion in 2008 to $182 billion recently. Deposits and equity account for 25 percent of funding, up from 10 percent at the end of 2007.
Expected out on Wednesday, investors in Morgan Stanley are looking to eke out a gain for its third quarter. Barron's notes tangible book value points to Morgan Stanley being worth about twice as much dead as alive, with a current ratio at about 0.57. Numbers for European rivals Deutsche Bank (NYSE: DB) and Barclays (NYSE: BCS), however, are at or near similar levels.
Should Morgan Stanley deliver 10 percent return-on-equity on $30 year-end tangible book value, earnings would equate to $3 per share, translating to a P/E ratio of 5x. Current expectations have Morgan Stanley earning 88 cents in fiscal 2011, and $2.31 in fiscal 2012.
While Morgan Stanley investors have a lot to consider, if earnings pan out and exposure is limited, it might just be a bonanza of upside heading into 2012.
Morgan Stanley shares are 0.7 percent lower Monday.
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