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
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.