No major Wall Street bank has endured as difficult a start to 2016 as Morgan Stanley, with the investment bank's stock down more than 20 percent so far this year.
But one analyst has found a silver lining in a sea of red. The bank's exposure to energy is far less than that of most competitors, which means that if oil's swoon continues, Morgan Stanley is expected to face lower stock declines.
"We like [Morgan Stanley]," because it has "lower than peer energy exposure," David Konrad, head of U.S. banks research at Macquarie, wrote Tuesday.
Macquarie lifted its rating on Morgan Stanley shares from "neutral" to "outperform'' and assigned a price target of $33 a share. Currently, the stock trades at less than $25.
A separate report, from Goldman Sachs on Jan. 20 notes that at $4.8 billion, Morgan Stanley's "assumed energy loans" are smaller than competitors like Bank of America, Citigroup, Wells Fargo and JPMorgan Chase. This, in turn, means the amount of capital needed to build a reserve against bad paper would cost the bank much less than its peers.
"Energy specific reserves have not been disclosed," Konrad wrote in his report. "[H]owever, we estimate reserves for funded corporate loans total approximately" $175 million.
Any optimism about commodities is predicated on the expectation that oil prices are at, or near, a bottom. But if recent hedge fund activity is any indicator, the oil market could be in for a badly needed rebound. More investors have placed long bets on Brent crude futures, and scaled back on shorts and options in recent weeks.
Morgan Stanley's conservative energy exposure isn't all that has Macquarie analysts jazzed for the stock. Since 2009, the bank has substantially shrunk the percentage of net revenue derived from fixed income and commodities trading and significantly increased what it makes from its wealth management business.
The bank's fixed income and commodities business was hammered in the fourth quarter, posting a 50 percent revenue decline, Morgan Stanley reported last month. That led to a head count reduction of 25 percent for that group, along with plans to exit or unwind areas of the fixed income and commodities business viewed as strategically unimportant to Morgan Stanley.
The Macquarie analysts say the bank would be worth $40 a share if it dumped the FICC business entirely.