Tags: Morgan Stanley | Shares | Bank | Rally

Morgan Stanley Shares Reach Post-Crisis Record as Bank Stocks Rally

Thursday, 18 September 2014 05:10 PM

Morgan Stanley shares rose to the highest level since the financial crisis, and Goldman Sachs Group Inc. closed at an almost five-year peak as U.S. stocks climbed to a record.

Morgan Stanley jumped 1.6 percent to $36.13, the highest since Sept. 12, 2008, the last business day before Lehman Brothers Holdings Inc. went bankrupt. Goldman Sachs rose for a seventh straight day, the longest streak since 2006, to $187.89.

The two investment banks, which converted to bank holding companies during the 2008 financial crisis, have overcome doubts about their survival as an improving economy helps U.S. stocks reach record levels. Surging deal fees and booming markets have helped allay concerns that lower trading volumes and stricter capital rules are pressuring returns.

“America comes back, it’s always come back. Frankly it’s done better than I might have expected in” the depths of the financial crisis, Berkshire Hathaway Inc. Chairman Warren Buffett said Thursday in a Bloomberg Television interview where he sat next to Goldman Sachs Chief Executive Officer Lloyd C. Blankfein. Policy makers “got the locomotive back on the tracks. And it started from a dead start, but it has moved a long way and it continues to move,” Buffett said.

Berkshire has 13.1 million Goldman Sachs shares, valued at more than $2 billion, that Buffett obtained through warrants acquired as part of a 2008 capital injection in the bank. Goldman Sachs in 2011 redeemed a $5 billion preferred stake on which Berkshire earned a 10 percent annual coupon.

Enjoying Payoff

Morgan Stanley has sold investors on a safer business model more dependent on its retail brokerage, while Goldman Sachs has produced higher returns and says it will benefit when markets become more active. Both are based in New York.

Morgan Stanley is “enjoying the payoffs” from “years of investment to fix and rebuild the business,” Christian Bolu, a bank analyst at Credit Suisse Group AG who has a “neutral” rating on the stock, wrote in a note to investors this week. “Morgan Stanley is well positioned to benefit from an improving operating environment and a more favorable interest-rate backdrop.”

Morgan Stanley has boosted margins in its wealth-management division, which more than doubled in size from the firm’s 2009 purchase of Smith Barney from Citigroup Inc. It also shrank its fixed-income trading business and has pledged to return more of the capital that supported that business to shareholders.

Tepid Support

Still, the firm’s return on equity, a measure of profitability, was about 8 percent in the first half of the year, below Chief Executive Officer James Gorman’s target of 10 percent.

Goldman Sachs’s 11 percent gain since Aug. 7 has come amid tepid support for the shares among analysts. Just nine of the 34 analysts covering the bank recommended buying the shares, compared with more than 80 percent four years ago.

Goldman Sachs President Gary Cohn has said that “abnormal” markets featuring low rates and low volatility have crimped trading revenue, which fell 12 percent in the first half of the year to the lowest since the crisis.

Still, rising markets and an increased number of mergers have boosted its three other units, which all had revenue increases in the first six months. The firm produced an 11 percent return on equity, ahead of Citigroup and Bank of America Corp. and on par with JPMorgan Chase & Co.

“We expect GS will continue to deliver fundamental results that are at the high end of peers,” Bolu wrote in a note last week.

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Morgan Stanley shares Thursday rose to the highest level since the financial crisis, and Goldman Sachs Group Inc. closed at an almost five-year peak.
Morgan Stanley, Shares, Bank, Rally
Thursday, 18 September 2014 05:10 PM
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