UBS Remains Bullish as Morgan Stanley (MS) Provides Clarity on FICC Business Restructuring
UBS maintained a Buy rating on Morgan Stanley (NYSE: MS), and cut the price target to $34.00 (from $42.00), following the company's 4Q earnings report. UBS lowered estimates by 16c to $3.00 per share in 2016, and by 12c to $3.40 per share in 2017, driven by lower FICC revenues and higher credit headwinds, partially offset by greater expense discipline. Going forward, Morgan Stanley's FICC business is likely to be higher velocity and focused on businesses that support the rest of the franchise, such as corporate credit and mortgage, and only certain macro products, such as structured rates and G10 FX.
Analyst Brennan Hawken commented, "MS provided further clarity on their plans for restructuring their FICC business, which is expected to free up $5 to $8 billion of capital (roughly in line with our estimates). Also, MS also launched "Project Streamline" which is expected to drive a $1 billion reduction in expenses by 2017 assuming a flat revenue environment (although we look forward to greater details and do not expect the simple run-off of litigation and severance would be viewed as much of an accomplishment). MS also established an ROE target of 9-11% for 2017, the first time MS has set a time-specific ROE target. Our current estimates align with the lower end of this range, and equate to a 10.4% ROTE."
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Shares of Morgan Stanley closed at $26.26 yesterday.