Yesterday, people were comparing Morgan Stanley to Bear Stearns when Morgan Stanley CDS soared – particularly as Jim Cramer said on CNBC, “Morgan Stanley is fine.”
The memo isn’t helping either, apparently. Now in premarket trading, the stock is approaching $12 lows it hasn’t seen since the crisis. UPDATE: Morgan Stanley just hit $11.89 in the live-market. UPDATE #2: Now it’s at $12.12.
On November 21 2008, MS dipped to $10.05.
October 3, 2011
To: All Employees
From: James Gorman
Subject: A Message from James Gorman
Over the past few weeks, there has been an enormous amount of confusion and misinformation about Morgan Stanley and others in our peer group. In fragile markets, where fear triumphs over common sense, these things are bound to happen. It is easy to try to respond to the rumour of the day, but that is not usually productive. Instead we should let balanced third parties do their own analysis and let the facts speak.
To help you wade through the maze of numbers and information, it might be worth reading two analyst reports that were published this morning. One is from Howard Chen at Credit Suisse that examines Capital, Funding and Liquidity at Morgan Stanley and Goldman Sachs and, in some detail, highlights the dramatic improvement to our financial strength over the last three years. [***See below for the note’s comments on MS] The other is from Matthew Burnell at Wells Fargo, who writes about Eurozone and Derivative exposure for the sector and plainly underscores that our exposure to the Eurozone and France in particular is not a concern.
I encourage you to stay focused on your job, remember that we are a client-focused Firm and do what you need to do to help our clients navigate this turbulence. It is in times like these when our professionalism, market wisdom and client focus are truly valued.
*** Howard Chen’s comments on MS:
We’re expecting a weak third quarter for Morgan Stanley driven by challenging market conditions and very low levels ofclient activity within Institutional Securities. We expect the end to the quarter was weaker than we anticipated-compared to early September, we now expect weaker Fixed Income and investment banking results, healthy Equities results and areflection of consolidation of recent share gains and also factor in more outsized DVA gains and continued drag frommonoline exposure (+$0.51 EPS collectively). Within Global Wealth Mgmt, we expect MS results to be somewhat insulated by fairly vibrant retail engagement trends over the volatile quarter and lagged pricing dynamics. For Asset Mgmt, we’re expecting a step-back in contribution here due to the impact of weaker risky asset prices on AUM levels and principalinvestments. Given the lower revenue profile, we expect compensation accrual to remain elevated…
As U.S. brokerage stocks fade further below their tangible book values and credit spreads widen, we revisit our core constructive thesis on the sector and take a more comprehensive look at the important changes that both Morgan Stanley and Goldman Sachs has made in improving and overhauling capital, funding and liquidity management over the past three years. Bottom line: We find no strong fundamental argument as to why the major brokerage stocks should be trading at valuations close to levels reached at the height of the crisis.