Morgan Stanley is sitting out of this particular US bank rally. Why?
There’s no real specific MS news. However, if the banks really are rallying based on changes to mark-to-market accounting in the States (despite the fact that these have been widely expected for weeks — whatever happened to buy the rumour sell the fact?) then perhaps this has something to do with it.
That’s a table from JP Morgan of current and forecast writedowns for investment banks. Morgan Stanley, with roughly $711m writedowns to go this year according to JPM estimates, is by far in the most favourable pretax position. BNP Paribas comes second with $845m to go. Barclays has the most with $2,067m, according to JPM.
This was JPM on the subject:
Within Global IBs our preference is for US over Europeans due to i) stronger and better quality of capital position and less leverage, ii) stronger ROE generation in IB, and iii) less credit risk with almost no accrual exposure. Our top picks are 1) GS (OW), and 2) CSG (OW) due to strongest operational and capital position, with GS best positioned within IB peers; 3) UBS (OW) as some NAV risk, only attractive in long term, 4) MS (N) excellent position, but expensive, and 5) DB (UW) in need of equity capital being over-leveraged and worst marks on structured credit.
Suggesting, perhaps, that the new mark-to-market changes — unsurprisingly — favour the weak over the (relatively) strong.
Related links:
M2M (or FAS 157-e) change confirmed – FT Alphaville
M2M Change = Time to buy banks? - FT Alphaville