Analysts Not Sweating Probe Of Morgan Stanley
.
By Brendan Conway / WSJ Blog / May 13, 2010
They’re surely no worse than others, and maybe they’ll even come out ahead.
That’s the Street’s reaction to the Wall Street Journal’s report that federal authorities are looking into Morgan Stanley’s mortgage-derivatives deals. With the Journal reporting that the probes are widening to include J.P. Morgan, Citigroup, Deutsche Bank and UBS, FBR Capital’s Steve Stelmach and Amy DeBone make the case that, far from holding Morgan Stanley back, an industry-wide probe likely means the company comes out ahead of others. They upgrade the shares to “outperform”:
“Given the stock’s recent pullback, we believe valuation offers an attractive entry point for a company that is in the midst of transitioning into what we expect will be a more stable, retail-oriented business model. …. While we do view the pending regulatory environment as having the potential to be fairly onerous on the industry, on a relative basis, MS should be better positioned than more institutionally focused peers. Regulatory risks are likely to persist (as demonstrated by the recent Wall Street Journal article highlighting potential investigations into mortgage-related derivative transactions). However, we do not view MS as any more or less exposed to regulatory risks than competitors.”
The idea is that the firm’s shift to a more conventional, retail-oriented business reduces the company’s involvement in the kind of complex, opaque securities that have attracted so much interest of late. Fair enough. But here’s a caveat: The deals under scrutiny have presumably already taken place, so one would think Morgan Stanley can’t bow out of this round of scrutiny. There’s also a long-run counterpoint: Isn’t it just as plausible to argue that a shift to retail gives regulators even more reason for aggressive oversight of various arms of the company?
Looks like the stock is on its way to recovering some of Wednesday’s 2% loss. With the Dow after the open, Morgan Stanley is up 0.5% to $27.95. |
