"We have been, for the last couple of years, quite conservative and deliberately so," Gorman said in a recent interview with Fox Business Network. But, he added, now that the bank has clearly recovered from the crisis, he wants capital returns to reflect that strength.
Morgan Stanley declined to comment about its proposed buyback and dividend plans or the implications for ROE.
Despite some concerns of ROE, the stock was among the best performers in the financial sector last year, up 64 percent in 2013, and shares have more than doubled since their post-crisis low of $12.36 in 2012.
Shares are up 3.4 percent year-to-date, closing at $32.44 on Monday. (Click here for the latest quote.)
Some investors and analysts say it is less important that Morgan Stanley hits Gorman's return-on-equity goal this year than that its returns are moving in the right direction.
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"They've had to get their balance sheet back in order, and now it's time to start sending some of that money toward shareholders," said Michael Cuggino, president and portfolio manager of the Permanent Portfolio Family of Funds, which owns Morgan Stanley shares. "But they don't have 100 percent control when it comes to meeting their ROE targets. It gets back to the question of, 'What does the Fed have to say?"'
Waiting for the Fed
How much the Fed will allow Morgan Stanley to spend on buybacks will affect how fast it can hit the 10 percent target, which would be more than double the 4.3 percent ROE it delivered in 2013.
Morgan Stanley's returns were weighed down by one-time litigation costs, an accounting charge and the cost of the Smith Barney purchase.
This year's profits are expected to be helped by higher earnings from that business as well as a reduction of fixed-income trading assets that are costly under new regulations.
Although analysts expect Morgan Stanley's profits to jump 62 percent this year, many still describe Gorman's 2014 goal as aggressive.
It would require Morgan Stanley to exceed analysts' earnings expectations by a substantial amount, or buy back more stock than analysts expect the Fed to allow.
Morgan Stanley started buying back stock last year for the first time since 2006. It announced a $500 million repurchase program in July, and used $350 million worth of that authorization before year-end.
Even with those repurchases, Morgan Stanley's outstanding share count increased by 2 percent last year because of shares issued as part of compensation. By comparison, its chief rival Goldman Sachs has spent $21 billion repurchasing shares since 2010, reducing outstanding stock by 15 percent, and has increased its dividend twice.
Analysts are estimating that Morgan Stanley will buy back about $700 million worth of stock this year on a net basis, on average, according to ISI Group. The bank would need to buy back nearly 20 times that amount to hit a 10 percent ROE target, based on the average analyst earnings estimate.
Instead, analysts are forecasting a return-on-equity of 7.5 percent this year, on average, according to Thomson Reuters data. Next year, analysts estimate Morgan Stanley will reach an ROE of 8.6 percent, on average. Analysts do not expect the bank to hit 10 percent on a quarterly or annual basis in either year.