Morgan Stanley Has 'Frustrated' Analysts, But It's Now Changing Their Minds

• Shares of Morgan Stanley (NYSE: MS) have declined 33.82 percent over the past six months, dropping almost to their 52-week low on January 21, at $24.78.
• Macquarie’s David Konrad has upgraded the rating on the company from Neutral to Outperform, with a price target of $33.
• Konrad expects the recent FICC cuts to lead to a significant improvement in the company’s margins, with the recent RWA reductions increasing the CET1 ratio to a peer leading 14.1 percent.

Analyst David Konrad explained that the stock has been “frustrating,” given Morgan Stanley’s best in class equities platform, along with its top tier wealth management and investment banking businesses.

However, the company’s ROE has lagged mainly due to its underperforming FICC business.

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“Although the FICC business is important to MS owing to certain core competencies and the benefits from DCM, the historical size and profitability has weighed down earnings and franchise value of MS,” Konrad stated.

The analyst pointed out that the company could be worth $40, without the FICC segment. Therefore, management’s decision to focus more or exit from some FICC products could drive an improvement in profitability, along with a significant improvement in valuation.

According to the Macquarie report, “Management expects the FICC restructure to free up $5 billion to $8 billion of capital, building on a strong CE1 ratio of 14.1 percent.”

Konrad expects Morgan Stanley to “outperform peers on credit losses given its wealth management focus.”