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Analyst says Morgan Stanley CFO more positive

Shares of Morgan Stanley were down slightly on Monday but an analyst said the company's chief financial officer was obviously less cautious and more constructive in a recent meeting than he has been in years.
/ Source: The Associated Press

Shares of Morgan Stanley were down slightly on Monday but an analyst said the company's chief financial officer was obviously less cautious and more constructive in a recent meeting than he has been in years.

Sandler O'Neill & Partners analyst Jeffe Harte maintained a "Hold" rating on the company's stock and set a 12-month price target of $30.

Shares were trading 7 cents lower Monday afternoon at $28.75. They've traded between $6.71 and $39.90 in the past year.

Harte reduced his third-quarter earnings per share estimate from 50 cents to 11 cents, expecting a much-larger-than-anticipated debt valuation adjustment. Losses from fair value accounting on debt are to approach $1.4 billion in the quarter.

Analysts surveyed by Thomson Reuters expect 50 cents per share, but they often do not include such one-time gains and losses.

Harte met with CFO Colm Kelleher on Friday and wrote an investor note Monday to summarize his findings.

He said Kelleher was "more constructive than we have heard in the last few years. He sounded more positive on the near-term capital markets outlook but still very cautious on the overall economy."

Kelleher declined to discuss recent reports that Morgan Stanley was attempting to sell its retail asset management business. However, Harte said he left the meeting with a sense that retail-targeted asset management would not be part of the company's business for long.

Harte said investors shouldn't expect a change in the company's strategy when new CEO James Gorman takes over in January.

The company announced last week that Gorman would take over from John Mack, who has been chief executive since 2005. Mack, 64, will remain chairman. He had announced more than a year ago that he would step down from the CEO role when he turned 65.

Morgan Stanley has been criticized in recent months under the leadership of Mack for being too conservative as the market stabilized and began to recover from the peak of the credit crisis last fall.

The New York-based bank lost more than $1.2 billion in the second quarter.

Harte said investors have voiced concerns about changing risk tolerance level in the institutional securities segment, expansion into retail banking, and whether to fix or sell businesses within asset management.

Kelleher maintains that the post credit crisis strategy remains consistent and that execution is the key, Harte wrote.