Morgan Stanley shares may double as brokerage margins improve and management devises a “bold fix” for the fixed-income trading business, Daniel Loeb’s Third Point LLC said as it disclosed a stake in the firm.
The hedge fund bought shares at an average cost of $16.77, 15 percent below yesterday’s close of $19.65, Third Point said today in a letter to investors. The stock (MS:US) will probably rise as earnings increase and the bank gets a greater percentage of profit from wealth-management, the fund said.
“We view MS at these prices as a chance to buy a free call option on a promising restructuring,” Third Point said in the letter, referring to New York-based Morgan Stanley by its stock ticker. “Although MS has historically failed to capitalize on its strengths, its leadership (MS:US) currently is focused on growing its good businesses while consolidating and successfully fixing its previously troubled wealth-management business.”
Third Point didn’t disclose the size of the stake. The stock (MS:US) fell 0.2 percent to $19.62 at 4 p.m. in New York trading.
Morgan Stanley (MS:US), which pays its directors more than rivals, should revise its board practices and “upgrade” the members of its board, the hedge fund said.
Morgan Stanley has shown “encouraging” results in improving profitability at its retail brokerage joint venture with Citigroup Inc., the hedge fund said in the letter. The bank must do more in 2013 to address its fixed income, currency and commodities, or FICC, trading unit (MS:US), according to the letter.
Mark Lake, a spokesman for Morgan Stanley, declined to comment on Third Point’s letter.
Gorman has already pledged to shrink that group, with plans to reduce risk-weighted assets in the business 35 percent from the third quarter of 2011 through the end of 2014. Morgan Stanley is cutting 1,600 jobs from its investment banking and trading units and support staff, a person with direct knowledge of the plans said today.
“Morgan Stanley has a tougher road ahead in dealing with its FICC businesses, which are limping along with a still- bloated cost structure and anemic returns due to regulatory changes stemming from the global financial crisis,” Third Point wrote.
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