Morgan Stanley (MS) is contemplating on shedding its fixed-income trading assets in order to boost the return on equity (ROE) in its fixed-income trading business. The Wall Street Journal reported that this New York-based banking giant might reduce $25 billion risk-weighted assets (RWAs) that are in no way helping it in revenue accruals.
Notably, these RWAs are mainly uncollateralized derivatives and structured credit products. The bank will lower its risky assets mostly through passive roll offs and by replacing them with assets that promise over 10% returns.
In fact, this Wall Street bank has been consistently lowering its fixed income and commodities RWAs through a combination of passive mitigation and active business unit management since 2009. As of Jun 30, 2014, Morgan Stanley had fixed income RWAs of $192 billion but expects the amount to be less than $180 billion by the end of 2015.
We believe that the reduced RWAs will free up capital which can be utilized to enhance shareholders’ value as well as for investment purposes. Moreover, this would boost the company’s ROE in the fixed-income trading business.
In recent times, Morgan Stanley is concentrating on its core operations while retreating from non-core and less profitable businesses. This step is possibly part of its strategy to improve cost efficiency.
Morgan Stanley currently carries a Zacks Rank #3 (Hold). Some better-ranked investment brokerage firms include Piper Jaffray Companies (PJC), Arlington Asset Investment Corp. (AI) and Moelis & Co. (MC). All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment