Reasons to join Morgan Stanley
Yesterday, analysts at both Credit Suisse and UBS upgraded Morgan Stanley on, among other things, the potential for year on year gains in its sales and trading operation, its strong capital position, and the potential of the Morgan Stanley Smith Barney JV.
As the graphs below show, any improvement in Morgan Stanley's sales and trading market share is long overdue: the bank has lost out significantly to the likes of Goldman and JP Morgan since 2007.
Market share, US capital markets, core fixed income trading revenue
Source: Credit Suisse
Market share, US capital markets, core equities trading revenue
Source: Credit Suisse
As both sets of analysts point out, Morgan Stanley is still hiring in areas like FICC and prime brokerage. As we've reported variously before, the bank is targeting 400 sales and trading hires, with headcount expected to increase by over
20% in such areas as FX, emerging markets, and equity derivatives. The recruitment push is already more than 50% complete.
However, until revenues from the rebuilt businesses come through, Morgan Stanley is taking a gamble. The bank has reviewed executive compensation structures to increase deferrals and clawbacks, but the Wall Street Journal says it's still expected to pay a record 64% of revenues in compensation this year as it struggles to keep pace with the likes of Goldman. Moreover, while Goldman Sachs is expected to make a healthy profit for 2009, Morgan Stanley may make a loss.
The analysts at Credit Suisse and UBS are unperturbed though. The former point to Morgan Stanley's strong capital ratio and are predicting an 8-10% increase in core trading revenues due to 'franchise restoration' in 2010. The latter point to the big potential for year on year revenue increases, and to MS's strong investment banking pipeline in a rebounding M&A market.
