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Morgan Stanley Still Finding its Financial Footing

By    |   Friday, 02 March 2012 07:55 AM

Global financial services powerhouse Morgan Stanley (MS) is still finding its footing in a shifting financial landscape, facing complex and far-reaching regulations as it seeks to increase risk and grow earnings.

Morgan Stanley is highly diversified by product and region. Its investment banking business is one of the world’s largest, accounting for 36 percent of 2011 net revenues.

The Morgan Stanley Smith Barney brokerage arm, a joint venture with Citigroup that employs more than 17,000 representatives worldwide, accounts for 57 percent of revenues. Asset management, such as private equity products, accounts for 7 percent.

For the fourth quarter of 2011, Morgan Stanley reported sales of $5.7 billion, down 26 percent from a year ago. Net income for the quarter was a loss of 14 cents per share versus a 44 cent gain. For full-year 2011, sales totaled $32.4 billion, up 3 percent from $31.4 billion in 2010.

Net income slumped to $1.26 per share, compared to $2.45 last year.

“We ended the year in better shape than where we started,” said Morgan Stanley CEO James Gorman in a statement. He added that the firm has addressed “a number of strategic and legacy issues.”

For 2012, Wall Street’s consensus earnings estimate has fallen to $1.92 per share. For 2013, the earnings estimate is $2.36.

Shoring up

The far-reaching effects of financial reforms such as the Dodd-Frank Act are roiling some analysts’ predictions, making it difficult to pin down future revenue growth. Morgan Stanley, meanwhile, has taken several steps to re-risk its balance sheet and spur growth, including cutting costs, selling units such as mortgage servicing and focusing on profitable key businesses. Acquisitions are another possible revenue driver.

Given such complexity, analysts have mixed opinions on Morgan Stanley. Of the 29 analysts followed by Thomson/First Call, six have strong buy recommendations and eight have buys, with 13 holds and two underperforms.

Goldman Sachs analysts upgraded Morgan Stanley to a buy, adding that investment banking and trading revenue will probably rise 13 percent in 2012.

The company next reports on April 23.

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