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Morgan Stanley: Still a Work in Progress, but Improving, Says Bernstein

Morgan Stanley: Still a Work in Progress, but Improving, Says Bernstein

20090116_morgan_stanley_smith_barney_18Regular readers will notice that I often quote Brad Hintz and his team at Bernstein Research. I find his research to be insightful. He has an outperform rating on Morgan Stanley. He concludes, "The company's consolidation of the 'Smith Barney' retail business with its own retail network will give Morgan Stanley control of the largest domestic brokerage platform, as measured by brokers and client assets," he wrote in a note today. Shame about the net asset outflows and the difficult technological integration, though.

Hintz writes: "Signs of improvement emerge. We were encouraged by the progress in the firm's global wealth management division as it appears the complex integration of MSSB is now being helped by a turnaround in the retail brokerage market. Pre-tax margins rose sequentially from 9% to 12% in Q4. Net revenue increased 8% sequentially to $3.35 billion on a 30% increase in commission revenues. Net interest revenue increased 13% QoQ to $341 million. Total client assets increased of 4% sequentially and net new client asset flows were a positive $14.1 billion during the quarter. Similarly, the once troubled Asset Management business continues to show signs of improvement. Revenue of $858 million increased 7% versus Q3, helped by better principal investment gains of $364 million. Assets under management improved 2% sequentially, to $279 billion attributable to market appreciation while net new flows were negative."

He notes that pretax margins improved from 9% to 12%, but James Gorman promised 20% levels.

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