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Fundamental View
AS OF 30 Dec 2024We view Morgan Stanley’s credit profile positively, supported by high capital levels, diversification in revenues and continued progress on building out wealth/asset management both organically and through acquisition.
Morgan Stanley’s capital markets businesses have rebounded as capital markets conditions improved in 2024, and should continue to benefit from market conditions in 2025. Wealth Management also saw some slowdown in growth in 2023 but appears back on track as market conditions improved.
Business Description
AS OF 18 Dec 2024- The company is now the sixth largest bank holding company by assets in the U.S. with $1.26 tn of assets as of 3Q24, and is the fourth largest by market capitalization ($216.9 bn as of Nov 21, 2024).
- Morgan Stanley maintains "significant market positions in each of its business segments," which include Institutional Securities, Wealth Management, and Investment Management.
Risk & Catalysts
AS OF 18 Dec 2024Ted Pick took over as CEO in 2024, and MS was able to retain other key managers under consideration for the role; we see no clear changes in strategy as a result of the handover.
Much of Morgan Stanley’s core business is tied to global macroeconomic trends and investor risk appetite. Additionally, it has significant trading risk and counterparty exposures, though such risk appears well-managed overall and is reflected in capital requirements which are governed by the annual DFAST and SCB regime. MS has typically run with capital levels at or near the highest among GSIBs given the trading losses included in the Fed’s model.
Rapid growth in the Wealth business in recent years at MS has had some publicized missteps in vetting clients; there remains a possibility of regulatory action, though we wouldn’t expect anything that alters the long-term strategy for the Wealth business.
Key Metric
AS OF 18 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 12.4% | 14.3% | 10.8% | 9.1% | 11.2% |
| ROAA (annual) | 1.0% | 1.3% | 0.9% | 0.8% | 0.9% |
| PPNR / Avg. Assets | 1.40% | 1.64% | 1.22% | 4.41% | 1.20% |
| Efficiency Ratio | 69% | 66% | 72% | 298% | 73% |
| Net charge-offs (LTM) / Loans | 0.05% | 0.05% | 0.01% | 0.06% | 0.06% |
| Common Dividend Payout | 20.9% | 25.4% | 46.3% | 215.5% | 50.5% |
| CET1 Ratio | 17.4% | 16.1% | 15.3% | 15.2% | 15.1% |
| Supplementary Leverage Ratio (SLR) | 7.4% | 5.6% | 5.5% | 5.5% | 5.5% |
| Liquidity Coverage Ratio (LCR) | 129% | 134% | 132% | 129% | 131% |
CreditSight View Comment
AS OF 05 Dec 2024We maintain our Market perform recommendation for Morgan Stanley, with our positive view of fundamentals supported by another solid quarter in 3Q24, where Morgan Stanley’s investment banking and trading results continued to improve along with market conditions. We see slightly better valuation among some of the money center banks (increasingly WFC, as well as Citi and BAC) but like MS relative to GS given similar spread levels recently. Performance rebounded in the Wealth segment from a difficult 2023. Recent reports on difficulties in vetting international wealth clients could result in regulatory action, though we expect very manageable financial impacts largely from continued investments in compliance.
Recommendation Reviewed: December 05, 2024
Recommendation Changed: March 14, 2016
Who We Recommend
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KB Financial Group
Woori Financial Group
