Morgan Stanley's Stock Lags Behind -- WSJ
January 18 2020 - 3:02AM
Dow Jones News
By Michael Wursthorn
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 18, 2020).
Morgan Stanley reported record revenue and profit for 2019 and
the stock jumped 6.6% on Thursday, its biggest gain in three years.
But for some long-term shareholders, that isn't enough -- the stock
still trades at a discount to pre-financial crisis levels.
That is a sign of the scars some banks carry more than a decade
after the credit crisis; Morgan Stanley's shares remain 20% below
their high from May 2007. But the pain runs even deeper. Morgan
Stanley's stock is still down 37% from its peak in 2000.
Compare that with rival JPMorgan Chase & Co., which also
reported solid earnings earlier this week and whose shares more
than doubled where they were in 2007.
What explains the disconnect? Analysts said the pain of the
financial crisis has been harder for Morgan Stanley to shake off
due to efforts it undertook to avoid collapse, including raising
equity that diluted its shareholders and a massive transformation
that still hasn't been fully appreciated by investors.
Morgan Stanley isn't alone. Other big bank stocks that continue
to trade below their precrisis levels include Bank of America Corp.
and Citigroup Inc., while Goldman Sachs Group Inc. trades at
roughly the same level. JPMorgan, meanwhile, escaped the crisis on
stronger footing to become the most valuable U.S. bank with its
$430 billion market cap.
"Morgan Stanley, Bank of America and Citi had much bigger issues
to deal with," said Glenn Schorr, a bank analyst at Evercore ISI.
"The digging-out process is going to take them much longer."
Morgan Stanley's biggest hurdle, Mr. Schorr said, was the share
dilution the bank undertook in the wake of the financial crisis.
Entering the throes of the crisis as the smallest bank by market
value of those five, Morgan Stanley took moves to bolster the
bank's equity capital by issuing more shares. In 2010, Morgan
Stanley had about two billion shares outstanding, nearly double its
2006 total. That steepened the bank's path to an eventual recovery,
said Mr. Schorr.
Bank of America ran into a similar problem after it issued large
amounts of stock to do things like repay government bailout funds.
Shares remain nearly 36% off their highest close back in late
2006.
Banks like Morgan Stanley and Bank of America aren't the same
businesses as they were back in the financial crisis. Both lessened
their dependency on volatile trading and investment-banking revenue
and bought massive wealth-management shops, a steadier line of
business that is considered less risky.
That helped both stocks notch significant gains over the past
decade, even if shares remain short of their precrisis highs.
Morgan Stanley shares have risen 141% since 2010, while Bank of
America has gained 189%. Morgan Stanley and Bank of America are
worth about $91.3 billion and $312.3 billion, respectively.
Goldman Sachs, meanwhile, has pushed into consumer banking,
offering savings accounts and loans to more people, a market
dominated by JPMorgan. Still, it remains more dependent on
traditional Wall Street business lines like trading and deal making
and has been dealing with the fallout for its role in a Malaysian
corruption scandal.
Shares have risen 69% over the past decade, and are trading at
roughly the same level as they were back in October 2007, giving it
a valuation of roughly $88.4 billion.
Citigroup's transformation, on the other hand, has delivered
mixed results over the years. Its shares closed at $81 Thursday,
far short of the $557 price the stock commanded in late December
2006, when it had a higher market cap than Bank of America,
JPMorgan, Morgan Stanley and Goldman. Its value is now $176.8
billion.
Despite the differing approaches, many investors still don't
fully appreciate the gains some banks have made, keeping a lid on
the sector's gains, said Devin Ryan, an analyst at JMP Securities
LLC. The S&P 500's financial sector trades at 13 times its
earnings over the next 12 months, while the broader index sits at
18.5 times, according to FactSet.
Part of that has to do with the crisis, as well as on-again,
off-again concerns of a possible recession, Mr. Ryan added.
"They're so much better capitalized, more liquid, less
leveraged, have more reserves," Mr. Schorr said. "These stocks have
come so far and improved so much. But some people still put a
discount multiple on them."
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Write to Michael Wursthorn at Michael.Wursthorn@wsj.com
(END) Dow Jones Newswires
January 18, 2020 02:47 ET (07:47 GMT)
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