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