Morgan Stanley is in the midst of revamping its fixed income, currencies, and credit businesses by hiring new sales people in the hope of regaining client wallet share, according to Nomura Securities analyst Glenn Schorr.
Schorr recently met with Co-President, Institutional Securities, Colm Kelleher and Global
Head of Rates, Credit, and Currency, Jack Di Maio, who told him they are about nine months into a two-year revamp. The goal is a 200 basis point improvement in market share, Schorr wrote in a note to clients, which equals about $3 billion in annual revenues. The company has averaged about $2 billion in core revenues over the past seven quarters, so an additional $750 million per quarter would be a 37% increase and would add close to 12 cents in quarterly earnings per share and about 150 basis points to the firm’s returns, he added.
“We think management has a credible plan to rebuild the trading franchise, which should lead to market share and revenue improvement over time,” Schorr wrote. But given that he thinks return on earnings will likely remain “sluggish in the near term,” he remains Neutral on the stock.
Morgan Stanley management see opportunities in equity derivatives, where it thinks it can increase revenues. Schorr believes the company is adding the right people, but it will take time, “as the business is not a simple plug-and-play model.” He also thinks the firm will focus more on emerging markets, convertibles, and covering key corporate clients.
In equities, Morgan Stanley took some hits during the economic downturn, wrote Schorr, especially in prime brokerage, but he believes the business is back on track and its revenues are in line with those in its peer group. In prime brokerage, Schorr writes that management is confident that Morgan Stanley is back to being among the top-3, “though it is unlikely that Morgan will ever go back to being a duopoly with Goldman, we think, as the business has changed and client balances are less concentrated post the Lehman bankruptcy,” he added.