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Fundamental View
AS OF 25 Mar 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. Capital markets revenues have been impacted by challenging conditions particularly for investment banking, but profitability has remained solid, helped by the revenue shift to Wealth.
Morgan Stanley (A1/A-/A+) was upgraded to A2 at Moody’s following the E*Trade deal closing and shortly thereafter was upgraded again to A1 on reduced risk of loss from the capital markets business. The S&P rating was upgraded to A- in May 2022.
Business Description
AS OF 25 Mar 2024- The company is now the sixth largest bank holding company by assets in the U.S. with $1.2 tn of assets as of 4Q23, and is the fourth largest by market capitalization ($144.5 bn as of Mar 18, 2024).
- Morgan Stanley maintains "significant market positions in each of its business segments," which include Institutional Securities, Wealth Management, and Investment Management.
Risk & Catalysts
AS OF 25 Mar 2024Ted Pick took over as CEO in 2024. The runner-up candidates for the job are staying with the company and Gorman is remaining as Executive Chairman, and we don’t expect major strategic changes.
Much of Morgan Stanley’s core business is tied to global macroeconomic trends and investor risk appetite. Additionally, it has significant trading risk and counterparty exposures, though such risk appears well-managed overall and is reflected in capital requirements.
Capital levels are governed by the annual DFAST process and the SCB regime. MS has typically run with capital levels at or near the highest among GSIBs given the trading losses included in the Fed’s model.
Key Metrics
AS OF 25 Mar 2024$ mn | FY19 | FY20 | FY21 | FY22 | 4Q23 |
---|---|---|---|---|---|
ROAE (annual) | 11.1% | 12.4% | 14.3% | 10.8% | 9.1% |
ROAA (annual) | 1.0% | 1.0% | 1.3% | 0.9% | 0.8% |
PPNR / Avg. Assets | 1.27% | 1.40% | 1.64% | 1.22% | 1.04% |
Efficiency Ratio | 72% | 69% | 66% | 72% | 76% |
Net charge-offs (LTM) / Loans | 0.01% | 0.05% | 0.05% | 0.01% | 0.06% |
Common Dividend Payout | 23.9% | 20.9% | 25.4% | 46.3% | 59.3% |
CET1 Ratio | 16.4% | 17.4% | 16.1% | 15.3% | 15.2% |
Supplementary Leverage Ratio (SLR) | 6.4% | 7.4% | 5.6% | 5.5% | 5.5% |
Liquidity Coverage Ratio (LCR) | 134% | 129% | 134% | 132% | 129% |
CreditSights View
AS OF 17 Apr 2024We maintain our Market perform recommendation for Morgan Stanley, with our positive view of fundamentals supported by 1Q24 results. We see better valuation among some of the money center banks (particularly Citi and BAC) but like MS relative to GS given similar spread levels recently. Performance rebounded in the Wealth segment and investment banking fees have started to show signs of a turnaround recently, both supported by market conditions in combination with the company’s long-term investments.
Recommendation Reviewed: April 17, 2024
Recommendation Changed: March 14, 2016