On Monday,Morgan Stanley (MS) announced the redemption of variable maturity notes due 2018 and 2023, having maturity values of $12 million and $2 million, respectively.
The notes, having their maturity date on August 29, 2018, command a redemption price of 100% of the total amount. Morgan Stanley will start the redemption effective August 29, 2011. Furthermore, the variable notes with December 3, 2028 as maturity date has a redemption price of 100% of the total amount. The redemption of these notes will start effective September 3, 2011.
Earlier in July, Morgan Stanley redeemed variable notes due in 2023 with a redemption amount of $2.75 million. Also, in April and May, the company had redeemed step-coupon notes due in 2016 (redemption amount of $5 million) and zero maturity coupon notes due in 2015 (maturity value of 1.5 million pounds), respectively.
Earnings Recap
In July, Morgan Stanley had reported a second-quarter 2011 loss from continuing operations of 38 cents per share, way behind the Zacks Consensus Estimate of a loss of 63 cents. The company earned 80 cents from continuing operations in the year-ago quarter.
Mitsubishi UFJ Financial Group Inc. (MTU) preferred stock conversion resulted in a substantial loss during the quarter, though it enhanced the capital cushion. Without this negative impact, Morgan Stanley would have earned 64 cents per share from continuing operations.
Strong investment banking performance and revenue growth in all the three business segments boosted the results. However, higher interest and non-interest expenses were the dampeners.
Estimate Revision Trends
Over the last 30 days, 5 out of the 15 analysts covering Morgan Stanley have lowered their estimates for the third quarter, while 6 of them have upped theirs. Moreover, for fiscal 2011, 1 out of the 18 analysts has trimmed its estimate, while 12 analysts have moved north over the last 30 days.
Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of 49 cents per share, up 872.0% from the year-ago quarter.
Our Viewpoint
At this point, the redemption of variable notes would bring in financial flexibility for Morgan Stanley. Besides, the company’s initiatives to enhance liquidity will also help pursue growth plans smoothly.
The company’s efforts to enhance liquidity, along with the ongoing restructuring and inorganic expansion, will continue to be significant growth drivers. Nevertheless, there are concerns over Morgan Stanley’s financials being marred by the new regulatory restrictions and intense pricing competition.
Morgan Stanley currently retains a Zacks #3 Rank, which implies a short-term ‘Hold’ rating. However, considering the fundamentals, we maintain a long-term “Underperform” recommendation on the shares.
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