Even though it made a rare first quarter loss on the back of accounting issues, Rochdale Research analyst Dick Bove is quite pleased with Morgan Stanley and is upgrading it to a buy.
However, Bove is also taking issue with the bank for its whimsical approach to cutting businesses -
When the market suggests that taking proprietary risk is the key to success, Morgan fires a bunch of people and adopts that strategy. When the market argues that retail sales and core
deposits are the key to success, Morgan fires more people and morphs into this type of a company. This is disconcerting.
By pulling back from fixed income and prop trading (and continuing to do so), Morgan Stanley may have lost out on some of the revenues enjoyed by competitors in Q1.
Interestingly, Morgan Stanley may also be suffering for having strengthened its risk management systems. While VaR at Goldman rose 53% year on year in the past quarter, Sanford Bernstein analyst Brad Hintz (who is known for his keenness on the stock), says -
The implementation of a strict, prudent risk management system at MS, on the heels of a tumutltuousQ4 '08, apparently came at the cost of a fixed income boom in lower-risk, plain vanilla fixed income flow trading that the firms' competitors enjoyed in Q1 '09.