It’s painfully true that nothing’s changed. After Goldman Sachs (GS) reported blowout numbers, analysts were wondering why they had let their leverage ratio get so modest. Meredith Whitney was asking when they’d do some share buybacks.
On the flipside, all of the bank’s critics, like Matt Taibbi, were wondering why their VaR was as high as it was, and why a bank should be allowed to take such risk having been both a) bailed out and b) been given access to the Fed’s discount window.
The bottom line is that shareholders want the risk, and analysts, who do the shareholder’s bidding, keep pushing for it. And they should be, since it is a heads-we-win, tails-the-taxpayer-loses game.
And so it is the case with Morgan Stanley (MS), which posted a huge loss yesterday, though largely due to one-timey things — not because their business is that awful. So the calls for more risk return. Analyst Steve Delmacha and Amy Debone put out the following for FBR this morning:
We are maintaining our Market Perform rating following Morgan Stanley’s
improved quarterly results. Despite a headline number that appeared
worse than forecasted, the quarter’s results generally reflected our
expectations for improving underlying business trends. While we see
some stabilisation and ultimate return to profitability next quarter,
we remain unconvinced (though hopeful) that MS will begin to take a
more risk tolerant stance. Absent a more risk tolerant posture, we do
not expect MS to sustainably achieve mid teen ROEs. We are, however,
increasing our price target from $25 to $29 to reflect better
visibility on earnings and improving underlying fundamental trends,
which will engender a higher valuation.
We had expected the quarter to be a noisy one, and
therefore any trend toward a more offensive posture in the market
would likely be eclipsed by a weak headline number. However, we
had assumed that beneath the GAAP loss would be signs of growing
risk appetite through significantly higher trading VAR. Instead,
trading VAR was lower for the quarter. We do note that, not
including DVA, both equity and fixed-income trading revenues were
up sequentially, despite a lower daily average VAR, and we take
some comfort in management’s comments on the conference call that
it does recognise a need to participate more actively going
It’s all clear. The fear is not insolvency. That’s long gone. The fear is not capturing enough upside.
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