MORGAN STANLEY (MS)

The other (remaining) big brokerage house that has become a bank holding company.

Reports Q4 earnings Wednesday 12/17 at approx. 730a-8a ET. Conference call at 11a ET.

WHAT WILL MOVE THE STOCK:

GOLDMAN EFFECT - Investors seem to be breathing a sigh of relief that Goldman Sachs' numbers weren't worse. Goldman shares are up big on Tuesday

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[GS  Loading...      ()   ]. More importantly for this article, Morgan Stanley shares are surging in sympathy

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[MS  Loading...      ()   ]. Fears that Morgan Stanley had a horrible fourth quarter appear to be receding.

ASSETS - What's Morgan Stanley's leverage ratio now? In Q3, leverage was 23.5x and adjusted leverage was 12.9x. How's liquidity? In Q3, average total liquidity was $175 billion. What about assets under management? At the end of last quarter, Morgan Stanley had $736 billion under management and $544 billion in "adjusted assets."

WRITEDOWNS - Writedowns took a big bite out of Goldman Sachs' earnings. Will Morgan Stanley have to lower valuations on any of its holdings? Keep in mind that Morgan Stanley has no subprime mortgage exposure and only $6.5 billion of higher quality residential mortgages at the end of Q3.

HOW WILL MORGAN STANLEY MAKE MONEY AS A BANK? - Last quarter, equity sales and trading net revenues grew 42% over year-ago levels. But... global wealth management revenues were down 8% and asset management was down 53%.

Q3 Revenue breakdown for Morgan Stanley:

Equity sales & trading $2.7 billion

Fixed income sales & trading $1.9 billion

Global Wealth Management $1.6 billion

Investment banking $1.0 billion

THE DIFFERENCE A MONTH MAKES - Analysts have been trimming estimates for Morgan Stanley, but not to the extent they have for Goldman Sachs. Still, it's a change that would have shocked us last year. Analyst now expect a loss of $0.34 per share down from a gain of $0.30 per share just 30 days ago.

... BUT WILL THE RESULTS BE EVEN WORSE? - Starmine's expectations for Morgan Stanley are significantly worse. By giving more weight to analysts with strong track records, Starmine forecasts Morgan Stanley will lose $0.55 per share on $2.785 billion in revenues.

-> When analyzing Morgan Stanley's numbers, keep in mind that:

a) estimates have been sinking rapidly

b) some (many?) investors are already banking on Morgan Stanley doing worse than "consensus."

c) Goldman Sachs stocks soared Tuesday after the company posted EPS and revenue numbers way below analysts' forecasts.

d) Perhaps most importantly, Morgan Stanley shares are rallying today in part on growing confidence that the quarterly results may be bad, but they're not going to be horrible.

ESTIMATES:

Q4 EPS improves to loss of $0.34 from loss of $3.61, revenues improve to positive $3.785 billion from negative $450 million.

Q1 EPS down 64% to $0.52, revenues down 18% to $6.855 billion

FY 08 EPS up 46% to $3.45, revenues down 4% to $26.966 billion

FY 09 EPS down 19% to $2.79, revenues up 8% to $29.253 billion

Source: Thomson Reuters

Starmine predicts Q4 EPS loss of $0.530 and Q1 EPS of $0.552 based on its weighting of analysts based on previous accuracy and other factors.

Starmine also expects $2.808 billion in Q4 revenues and $6.779 billion in Q1 revenues.

Year-ago actuals: Q3 EPS loss of $0.37, revenues $450 million

FACTOIDS:

REBOUNDING FROM 14-YEAR LOW - On October 10th Morgan Stanley shares briefly sunk to $6.71, the deepest drop since December 1994. Morgan Stanley's recent closing low is $9.20 on November 20th, the worst close since May 2, 1995.

The good news? With today's big gains, Morgan Stanley is up 140% from its intra-day nadir and up 75% since the closing low just 3 1/2 weeks ago.

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