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Morgan Stanley 'Pursuing The Right Strategy,' Says JPMorgan

Morgan Stanley 'Pursuing The Right Strategy,' Says JPMorgan
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JPMorgan’s Kian Abouhossein reaffirmed a cautious stance on the banking sector following the U.K.’s Brexit vote.

Abouhossein maintains an Overweight rating on Morgan Stanley (NYSE: MS), while lowering the price target from $29 to $27.

The analyst explained the base case scenario was “a slowing EU economy leading to lower rates,” and expects CoE to increase for UK credit exposed banks, given the meaningful uncertainty regarding the UK and EU banking sector.

The Right Strategy

Abouhossein believes Morgan Stanley was pursuing “the right strategy” by further cutting down its FICC business with end-state FICC RWAs expected to decline to $110 billion, from $136 billion in 2015.

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“MS FICC business mix is very geared to Credit and Securitised Products which is likely to be weak in 2016, looking at the widening in credit spreads and hence we believe if the current revenue environment does not improve, MS may have to have another review of its FICC business which would further release capital in our view,” the analyst said.

Abouhossein expects the company to spend a cumulative $9.9 billion on buybacks over the remainder of 2016-2018.

The EPS estimates for 2016 have been cut by an average 14 percent, while the EPS estimates for 2017 and 2018 have been lowered by an average 16 percent, to reflect lower WM and IB revenues.

Latest Ratings for MS

Apr 2018BarclaysMaintainsEqual-WeightEqual-Weight
Apr 2018Credit SuisseMaintainsOutperformOutperform
Apr 2018BernsteinInitiates Coverage OnUnderperform

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