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Take Your Position: Wells Fargo, Morgan Stanley


Investors are keeping a close eye on the financials with both Morgan Stanley and Wells Fargo scheduled to reports earnings on Wednesday.

Analysts believe Morgan Stanley likely broke a string of three straight losses in the third quarter, while Wells is expected to follow its big bank peers in reporting more loan losses, but how much more is the big question.

What should you know?

Wells Fargo

Wells is considered one of the stronger, more conservatively managed large banks. But investors are still worried about credit quality in the loan portfolio it acquired as part of its purchase of Wachovia last fall.

JPMorgan, Citigroup and BofA rattled investors last week when their results showed that loan losses remain high, which means consumers and businesses are still having trouble paying off their debts.

The losses at JPMorgan and Citigroup, however, were offset by robust trading activity. Though Wells Fargo has a smaller trading operation than some of its big-bank counterparts, the bank has had much success in growing its mortgage banking business.

Income generated from mortgage banking more than doubled in the second quarter from the prior-year period.

Take Your Position: Bank Earnings

What’s the trade?

Our price target on Wells Fargo is $33, says Stifel Nicolaus analyst Chris Mutascio.

I’m holding Wells Fargo preferred, reveals Karen Finerman.

UBS came out with a sell and a $20 price target, reminds Guy Adami. I wouldn’t short this stock but I’m curious to see how it trades.


Morgan Stanley

Ahead of earnings Morgan Stanley inked a deal with Invesco to sell its retail asset management business, including Van Kampen Investments, for $1.5 billion. The deal allows Morgan to begin aggressively restructuring an area of its business that had been losing money.

Meanwhile, analysts remain concerned about the bank's continued losses on real estate principal investments and the accounting ramifications of improvements in its debt prices.

In recent years banks recorded big gains on the declining market value of debt they issued, because they could buy back the debt cheaply. But as banks' prospects have improved in the last few quarters, the value of their debt has jumped, forcing them to reverse earlier gains, weighing on earnings.

Morgan Stanley "will take some pain in terms of writing up their own debt yet again," said Steve Stelmach, an analyst with FBR Capital Markets

What’s the trade?

Clearly the stock has had a nice run, says Guy Adami.. I’d take a wait and see approach to this stock.

I like Morgan but the stock hit a 52-week high, adds Pete Najarian. It makes me wonder just how strong business has to be to take shares even higher.

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