Strategy
Morgan Stanley Expects New Fall in Bank Stocks
Morgan Stanley expects the earnings performance of most banks to worsen next year and has cut back on previous earnings forecasts but says some specialist investment houses and wealth management firms can buck the general trend.
In a research note, the US investment bank said that historical share market trends prompt it to expect a fall of up to 10 per cent in banks’ stocks, halting what it calls a recent “bear market rally” in such equities.
“We think some equity investors have underestimated the need for banks’ management to de-lever and to get their funding costs down in the credit markets, as well as meet regulators’ and rating agencies’ views to reduce risks, rather than optimise equity returns,” the bank said.
“Clearly, there are some banks where we see more bounce in 2008 – some of the Middle Eastern banks and those focused on emerging markets would fit this camp – and in part this is why we include First Gulf, Bank Doha, DnBNor and Santander in our portfolio,” it said.
It noted that some banks had demonstrated “very resilient earnings expectations”, such as Julius Baer, the Swiss private banking group, as well as Standard Chartered, the UK-based bank, and Santander, the Spanish-based bank.
Morgan Stanley said its earnings revisions showed that its top stock picks – like Julius Baer – remained strong and it needed to be aware that not all of this strength had been factored into share prices.
Since March 2007, Morgan Stanley has slashed 2009 earnings forecasts on Credit Suisse, Deutsche Bank and Barclays by 39 per cent, 32 per cent and 36 per cent respectively. It did not give a figure for UBS, the Swiss banking group that has been hit by heavy debt write-downs.
Among other banks and investment firms, Morgan Stanley said it has cut 2009 forecasts on HSBC (-25 per cent); BNP Paribas (-15 per cent); Societe Generale (-32 per cent), Julius Baer (-7 per cent); and Schroders (-18 per cent). It has increased earnings forecasts on Man Group, the hedge fund company, by 4 per cent, and Invesco, the fund management firm, by 5 per cent.
