Sub-sector: Brokers
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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
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Fundamental View
AS OF 25 Mar 2024Goldman Sachs has had solid but mixed results in recent years, with strength in trading results particularly during periods of market volatility. Investment banking results have weakened in line with market conditions but Goldman’s market share remains strong. Investment banking appears to be rebounding in early 2024. The funding profile has improved over time with increased deposit funding.
Goldman remains well behind “Big 6” peers in diversifying its revenue base beyond its historical strong points. Wealth and Asset Management are now the most likely areas of growth in the coming years. Goldman’s results have been weighed by costs related to consumer banking and exits from those businesses.
Goldman Sachs’ (A2/BBB+/A) HoldCo long-term debt ratings have stable outlooks.
Business Description
AS OF 25 Mar 2024- Goldman Sachs is now the fifth largest bank holding company in the U.S. with approximately $1.64 tn in assets as of 4Q23 and a market capitalization of $131.8 bn as of Mar 19, 2024.
- Goldman Sachs presents its activities through three business segments: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
- Goldman's historical strengths include equity and FICC sales & trading, investment banking, institutional investment management including alternatives, and high net worth wealth management. It has been expanding its wealth management client base, and adding other stable fee income streams amid a sluggish capital market environment.
Risk & Catalysts
AS OF 25 Mar 2024From a fundamental standpoint, the past several years have been a mixed bag. Goldman’s poorly-executed foray into consumer lending has thus far been a costly blunder, diverting capital and management attention away from its core businesses and providing a meaningful drag on profitability. Management is in the process of selling consumer-related businesses. Goldman’s performance has remained strong in its legacy areas of strength in trading and investment banking.
Goldman could participate in further M&A to achieve its long-term strategic goals, as it has in recent years with mixed results; most likely through add-on deals related to asset/wealth management.
Goldman could be impacted by the lack of liquidity in the secondary markets during periods of market turmoil, but for the most part, has been positively impacted by bouts of volatility.
Key Metrics
AS OF 25 Mar 2024$ mn | FY19 | FY20 | FY21 | FY22 | 4Q23 |
---|---|---|---|---|---|
ROAE (annual) | 9.4% | 10.3% | 21.3% | 9.7% | 7.3% |
ROAA (annual) | 0.9% | 0.8% | 1.5% | 0.7% | 0.5% |
PPNR / Avg. Assets | 1.20% | 1.34% | 1.86% | 1.08% | 0.75% |
Efficiency Ratio | 68% | 66% | 54% | 65% | 72% |
Net charge-offs (LTM) / Loans | 0.46% | 0.70% | 0.19% | 0.30% | 0.68% |
Common Dividend Payout | 18.2% | 19.0% | 10.6% | 28.4% | 42.2% |
CET1 Ratio | 13.3% | 14.1% | 13.6% | 15.0% | 14.4% |
Supplementary Leverage Ratio (SLR) | 6.2% | 6.9% | 5.5% | 5.8% | 5.5% |
Liquidity Coverage Ratio (LCR) | 127% | 128% | 122% | 129% | 128% |
CreditSights View
AS OF 18 Apr 2024We maintained our Market perform recommendation for Goldman Sachs; we remain quite comfortable with the name fundamentally but see better value at money center banks as well as Morgan Stanley, given recent spread levels, which we believe have been pulled tighter by a lack of HoldCo issuance by GS since the start of 2023. We see Goldman Sachs as an improving credit story despite messy results in 2023 as it exited a number of consumer-facing businesses, and 1Q24 results were stronger in core business lines within Global Banking & Markets and Asset & Wealth Management with less of a drag from Platform Solutions.
Recommendation Reviewed: April 18, 2024
Recommendation Changed: January 12, 2022