TEXT-S&P: Morgan Stanley ratings unaffected by results

Fri Jan 18, 2013 1:07pm EST

Jan 18 - Standard & Poor's Ratings Services today said its ratings on Morgan
Stanley (A-/Negative/A-2) are not affected by the company's good
fourth-quarter results, which were better than our expectations given current
operating conditions.

Standard & Poor's-adjusted revenues of $7.5 billion and adjusted pretax 
earnings of $1.4 billion were 3% and 28% higher, respectively, than 
fourth-quarter 2011. Particularly strong results in debt underwriting and 
modest growth in advisory and equity underwriting and wealth and asset 
management fees benefited revenues. Trading results were lower, primarily 
because of a difficult quarter for commodities. Global market conditions and 
new regulations will continue to shape results in 2013.

The pretax margin for the wealth management business jumped to 17% in the 
quarter, primarily because of a seasonally lower compensation ratio, but also 
because of higher revenues. We expect the full-year 2013 pretax margin to 
expand from the 12% in full-year 2012 as Morgan realizes the benefit of its 
growing stake in the joint venture.

The company's Basel III Tier 1 common ratio rose to roughly 9.5% during the 
period. Morgan is ahead of pace in its plan to reduce fixed-income and 
commodity risk-weighted assets (RWA) and has been conservative in returning 
capital to shareholders, which has helped to build the ratio. Morgan also 
detailed its strategic goals to achieve higher returns on capital, including 
100% ownership of the wealth management joint venture in 2013, cost savings, 
RWA reduction, and return of capital to shareholders. Successful execution of 
the plan likely would support the current ratings, which reflect our 
expectation for reduced risk and less volatile future results.

Overall, fourth-quarter results support Morgan's stand-alone credit profile. 
But the outlook on the issuer credit rating is negative, reflecting the 
negative outlook on the sovereign rating on the U.S., as well as the potential 
negative impact that yet-to-be-finalized regulations (particularly the Volcker 
Rule) could have on the business. The outlook also recognizes the potential 
effect of the eurozone crisis on Morgan's funding and liquidity, though the 
support the European Central Bank has provided to struggling countries and 
financial institutions has so far reduced these risks.
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