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Funds News

UPDATE 1-Bernstein cuts earnings estimates for Morgan Stanley

(Recasts, adds details, share movement)

Sept 30 (Reuters) - Sanford C. Bernstein lowered its earnings estimates for Morgan Stanley MS.N, after the investment bank agreed to sell a 21 percent stake to Japan's Mitsubishi UFJ Financial Group Inc 8306.T for $9 billion to shore up its finances.

“While the deal is certainly dilutive to current shareholders, this should help Morgan Stanley regain some confidence from the markets,” analyst Brad Hintz wrote in a note to clients.

The analyst said the net earnings impact of the capital raise will be a 17 percent to 19 percent hit to his 2009 and 2010 full-year earnings-per-share expectations for Morgan Stanley.

“Right now, confidence in one’s name is significantly more important than high-teens earnings dilution,” said Hintz, who maintained an “outperform” rating on the stock.

The analyst cut his earnings estimates for the investment bank to $4.84 from $5.02 per share for 2008 and to $4.42 from $5.46 a share for 2009. He also lowered his price target on the stock by $10 to $50.

A full credit market recovery is not expected until at least early 2009, while the U.S. economy will start recovering in mid 2009, he said.

Shares of the New York-based company rose 6 percent to $22.32 in morning trade on the New York Stock Exchange. (Reporting by Amiteshwar Singh in Bangalore; Editing by Deepak Kannan)

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