For Immediate Release
Chicago, IL – May 31, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Morgan Stanley (MS), Moody’s Corp.(MCO), JPMorgan Chase & Co.(JPM), Citigroup, Inc. (C) and Bank of America Corporation (BAC).
Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Wednesday’s Analyst Blog:
Fed Puts Morgan Portfolio Shift on Hold
Morgan Stanley’s (MS) plans of moving a large portion of its $52 trillion derivatives portfolio to its subsidiary bank have been put on hold by the U.S. Federal Reserve. The company’s decision to shift this huge amount comes in the wake of a possible credit downgrade by credit rating agency Moody's Investor Service, a wing of Moody's Corp.(MCO).
The Fed has not ruled out Morgan Stanley’s appeal to transfer its derivative portfolio. However, under the Dodd-Frank financial reforms, the Fed needs to formally discuss the matter with another regulatory authority, the Federal Deposit Insurance Corporation (:FDIC). That is why the announcement of the final decision is being delayed.
The Fed is entrusted with safeguarding the stability of the entire financial system, whereas FDIC’s objective is to safeguard banks’ deposits. Both regulatory bodies differ on their objectives. As a result, the issue has become a bit complicated.
From Morgan Stanley’s point of view, this is a strategic action to reaffirm the trading partners’ confidence in its financial strength. Moreover, the growth in earnings is anticipated, propelled by lower funding costs if the derivatives are moved to Morgan Stanley’s bank. The bank retains a long-term credit rating of A1, whereas Morgan Stanley as a whole retains A2 rating by Moody’s.
Moody’s is anticipated to downgrade the entire banking sector, which is bound to affect nearly 17 global and 114 European financial institutions. The decision to downgrade reflects the increasing impact of European debt crisis across the global financial markets.
Morgan Stanley’s ratings could further fall three notches to Baa2. Several other banks like JPMorgan Chase & Co.(JPM) and Citigroup, Inc. (C) are on review for a two-notch downgrade, whereas Bank of America Corporation(BAC) is on review for one notch downgrade.
However, if the Fed restricts Morgan Stanley of moving the derivatives to its bank subsidiary, it can very well transfer it to a separate wing, known as Morgan Stanley Derivative Products. This division also possesses a higher credit rating from Moody’s.
Morgan Stanley’s idea of diverting derivatives to its subsidiaries should work in its favor in case there is a downgrade in the rating. Firstly, it will be able to retain its business which, in given circumstances, could have been taken up by its rivals with higher ratings. Moreover, the diversion would positively impact the financials as the interest expense would come down because of lower funding costs.
Currently, Morgan Stanley retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain our long-term Neutral recommendation on the stock.
Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Follow us on Twitter: https://twitter.com/zacksresearch
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Zacks Investment Research
800-767-3771 ext. 9339
More From Zacks.com