High Interest Rate = Big Wins for $MS. Buy !
On Mon, 10 Jun 2024, $Morgan Stanley(MS)$ CEO Ted Pick said that a higher-for-longer interest rates are "good for business." at a financial services conference hosted by it’s Research division.
Mr Pick felt it is good for business mainly because Morgan Stanley’s management team have spent a lot of time refining the strategy.
With the FOMC June 2024 meeting officially over, Mr Jerome Powel and team have confirmed that Fed funds rate remained status quo for another month.
More importantly, US central bank has confirmed a single interest cut in 2024 due to:
A string of sticky inflation readings during Q1 2024, and
Surprisingly strong economic data.
Current rate path presents a conundrum for many banks that:
Rely heavily on the spread between what they pay for deposits & earn from their loans, and
Banks that are heavily exposed to certain types of troubled borrowers.
CEO Pick also elaborated that the strategy developed by Morgan Stanley’s ex CEO James Gorman, protects the financial institution, from the risks of an elevated rate environment.
Case in point, the investment bank does not:
Extend unsecured credit in emerging markets.
Credit cards through a loan cycle.
As much as the above services can be great business / money spinners, Morgan Stanley is sticking to their forte, and this is why it’s so important, the discipline that Mr Gorman has crystalized."
In his 2024 letter to shareholders, CEO Pick iterated that "while there has been a change in leadership, there is no change in strategy.
YTD, Morgan Stanley’s stock has risen just +1.40%, underperforming its big Wall Street rivals. (see above)
Its stock was marginally lower on Thu, 13 Jun 2024.
Q1 2024 profits rose more than analysts expected YoY, thanks to pickups in fees for investment banking, trading, and asset management.
Fees from investment banking rose +19% YoY, driven in large part by more equity and fixed income underwriting transactions for work on IPOs and corporate bond issuance.
On Monday, Mr Pick pointed to better integration of Morgan Stanley’s investment banking, trading, wealth, and asset management as the key place for the firm’s future growth.
He highlighted Morgan Stanley’s business of stock plan administration for corporate clients as a way to engage with other divisions of the firm like investment banking.
The CEO also discussed:
How, artificial intelligence (AI) would boost Morgan Stanley’s investment bank revenues.
"There's an enormous flywheel of activity" when he referred to clients in the utilities, telecommunication, real estate, and technology sectors who will face more demand as the trend takes off.
AIMS better known as AI@Morgan Stanley — is set of artificial intelligence products it offers clients within its wealth and asset management division.
Some of the firm’s products may already save its financial advisers 10 to 15 hours per week, according to Mr Pick.
Morgan Stanley and other big banks are waiting this year for a final ruling on the “new capital requirements” that were initially proposed nearly a year ago.
Anticipation is that final requirements should be less onerous than the initial proposal.
That may mean banks will be “freer” to return to shareholders some of the excess capital they are currently holding.
Without saying what the firm plans to do, Pick admitted:
He loved dividends as a way of rewarding shareholders.
Shareholders would really care about dividends.
He thinks it is emblematic of Morgan Stanley’s strength, stability … so that’s sacrosanct.
Investments to grow the firm, along with stock buybacks were also possible uses of excess capital.
My viewpoints: (mine only)
Morgan Stanley’s stock price has “stagnated” during the covid years 2021 - 2023. (see below)
Looking at MS’s stock price movement from 2021 to 2023. (see above)
Year 2021 - gained. It ended the year around $90 per share.
Year 2022 - loss. It ended the year, falling to $80 per share.
Year 2023 - gained. It ended the year, rising to around $91 per share.
Nett, nett - time stood still for Morgan Stanley these 3 years.
Of course, there is no room for comparison against financial institutions with retail banking services.
Using $JPMorgan Chase(JPM)$ as an example.
Year 2021 - gained. Ended the year at around $147 per share.
Year 2022 - loss. Ended the year at around $127 per share.
Year 2023 - gained. Ended the year at around $168 per share.
Nett, nett - there was an average $21 gain during these 3 years.
On a brighter note, investment banking activities are picking up pace in 2024, things are looking up for Morgan Stanley.
Not forgetting; a promise of a “bonus” due to “excess” capital requirements set aside due to Year 2023 banking debacle.
Would you agree 2024 is Morgan Stanley’s breakout year ?
Must Read: Click on below titles to access. Give a like & help to repost ok. Thanks.
Do you think Morgan Stanley stock price will continue to rise higher ?
Do you think the elevated higher interest rate will be the catalyst for Morgan Stanley to play catch-up with its peers, with retail banking arms ?
If you find this post interesting, give it wings! ️ Repost and share the insights ?
Do consider “Follow me” and get firsthand read of my daily new post. Thank you.
Modify on 2024-06-26 22:13
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Pls help to "Re-post". Tks! Rating is important (to me).
Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!
Join
Hm
Great article, would you like to share it?
Lmak