'Bold Fix' Could Help Top Firm, But Questions Persist About Future

Question Mark

Fortune favors the brave, they say.

Morgan Stanley shares may double as brokerage margins improve and management devises a 'bold fix' for the fixed-income trading business, Daniel Loeb’s Third Point LLC said as it disclosed a stake in the firm.

Bloomberg reports that the hedge fund bought shares at an average cost of $16.77, Third Point said in a letter to investors earlier this week. The stock will probably rise as earnings increase and the bank gets a greater percentage of profit from wealth-management, the fund said.

'We view MS at these prices as a chance to buy a free call option on a promising restructuring', Third Point said in the letter, referring to New York-based Morgan Stanley by its stock ticker. 'Although MS has historically failed to capitalize on its strengths, its leadership currently is focused on growing its good businesses while consolidating and successfully fixing its previously troubled wealth-management business'.

Third Point didn’t disclose the size of the stake.

In the meantime, The New York Times reports that regulatory demands, weak markets and lower credit ratings have weighed on all banks, but perhaps more so on Morgan Stanley, the smallest of the big Wall Street firms. In the three years that James Gorman, 54, has been at the helm, the firm has been progressively shrinking its business of trading bonds, commodities and other investments and expanding into wealth management.

Now Morgan Stanley is cutting even deeper, raising questions among some on Wall Street about whether it should spin off or ditch much of its trading business as its Swiss rival UBS has, a suggestion the firm eschews.

Morgan Stanley is planning another deep round of cuts: 1,600 jobs, accounting for 6% of its support work force, and, more telling, 6% of institutional securities, which includes its once vaunted trading business.

Morgan Stanley Shares May Double, Loeb’s Third Point Says

Deep Cuts Raise Questions About Morgan Stanley

 

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