Morgan Stanley Has Been Bogged Down With Legacy Issues, But Future May Be Brighter Now

James Gorman Pic

Morgan Stanley CEO James Gorman’s plan to boost returns has created disagreement among analysts as they debate whether his strategy will satisfy investors. The market says it can.

The stock has surged 11% in the two trading days since the New York-based bank reported fourth-quarter results and Gorman laid out his plan for higher returns. David Hilder, a Drexel Hamilton analyst, cited the strategy in raising his share-price estimate, while others including Atlantic Equities LLP’s Richard Staite expressed doubt the firm could attain Gorman’s goals over the next few years.

Bloomberg reports that Gorman called the fourth quarter a 'pivot point' as he moves from managing the aftermath of the financial crisis to focusing on improving profits. Faced with questions about the firm’s ability to earn its cost of equity, an estimate of returns demanded by investors, Gorman laid out a plan to double return on equity to 10% even without an improvement in the markets.

'Just the fact that we’re having a call where they’re talking about long-term strategy and profitability is refreshing', said Shannon Stemm, an analyst at Edward Jones & Co. in St. Louis. 'This is something that you hope you’re able to think and talk about every single quarter, but that has not been the case with Morgan Stanley (MS) because they’ve been very bogged down in some of these legacy issues'.

Hit the link below to access the complete Bloomberg article:

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