Posts Tagged ‘Morgan Stanley’

S&P 500 2011 Median Target – 1,535, Really?

Friday, March 4th, 2011

Investment bank earnings estimates are truly bullish for 2011.  Applying a 16x-18x multiple to these forward earnings brings you to S&P levels unseen since 2007.  Unfortunately, something not included in these estimates is that for every $10 crude oil increases, S&P earnings fall by $3.  This does not even factor in the fall in consumer confidence when citizens across the globe realize that they are soon going to pay $200 to fill up a mid-sized sedan, once QE3 is unveiled and Middle Eastern governments are overthrown once and for all.  After all this is done for, oil could easily reach $130+ on a supply disruption in Saudi Arabia.

Of course, BofA’s Bianco will not discuss this.  Neither will the analysts at Barclays, who just revised their S&P 500 earnings estimates up from 1,420 to 1,450.

Please view LA’s blog entry to see the S&P earning’s table below.

Predicted
Firm Strategist 2011 Close 2011 EPS RPF Model
Bank of America David Bianco 1,400 $93.00 1,535
Bank of Montreal Ben Joyce 1,300 $89.00 1,469
Barclays Barry Knapp 1,420 $91.00 1,502
Citigroup* Tobias Levkovich 1,300 $94.50 1,559
Credit Suisse Andrew Garthwaite 1,350 $91.00 1,502
Deutsche Bank Binky Chadha 1,550 $96.00 1,584
Goldman Sachs David Kostin 1,450 $94.00 1,551
HSBC Garry Evans 1,320
JPMorgan Thomas Lee 1,425 $94.00 1,551
Morgan Stanley**
Oppenheimer Brian Belski 1,325 $88.50 1,460
RBC Myles Zyblock $88.00 1,452
UBS Jonathan Golub 1,325 $93.00 1,535
Median 1,350 $93.00 1,535
Average 1,379 $92.00 1,518
High 1,550 $96.00 1,584
Low 1,300 $88.00 1,452

Lazard Operating Revenues Jump 67% Year over Year: Core Investment Banking Coming Back

Sunday, May 9th, 2010

Lazard, famed investment bank and legacy of Bruce Wasserstein recently reported earnings that blew investors away.  Operating revenues jumped 67% from one year earlier.  Lazard advises on mergers & acquisitions, restructurings, and to a lesser extent, capital raisings.  It operates from 40 cities across 25 countries throughout Europe, North America, Asia, Australia, and Central and South America, focusing on two business segments: Financial Advisory and Asset Management (explained below).

According to Bloomberg, “Lazard Ltd., the biggest non-bank merger adviser, rose in New York trading after posting adjusted earnings that beat analysts’ estimates on operating revenue that jumped 67 percent from a year earlier.

The loss for the first three months of 2010 was $33.5 million, or 38 cents a share, compared with a loss of $53.5 million, or 77 cents, in the same period a year earlier, the Hamilton, Bermuda-based company said today in a statement. Adjusted earnings were 46 cents a share, beating the 18-cent average estimate of 12 analysts in a Bloomberg survey.

Lazard’s revenue from advising on mergers and acquisitions climbed from a year earlier even as companies completed a lower value of deals in the quarter. Excluding special charges, the firm’s compensation ratio fell to 60 percent of revenue, compared with 75 percent in the first quarter of 2009.

“The report should give investors a booster shot of confidence on two important fronts,” Oppenheimer & Co. analyst Chris Kotowski said in a note to investors. “First, that the rebound in M&A activity is happening, albeit in fits and starts. Second, that the company is developing discipline around its compensation and other costs.”

Lazard rose 57 cents, or 1.5 percent, to $38.78 at 4 p.m. in New York Stock Exchange composite trading. The shares gained 28 percent last year after falling 27 percent in 2008.

Revenue Increase

Operating revenue rose 67 percent from a year earlier to a first-quarter record of $456.9 million. Operating revenue from financial-advisory services climbed to $269.1 million as fees from advising on both mergers and restructuring jumped more than 50 percent.

Revenue from merger and acquisition and strategic advisory climbed 53 percent from a year earlier to $147.6 million. That’s down 13 percent from the fourth quarter of 2009.

Asset management revenue climbed 78 percent from a year earlier to $183.7 million. Assets under management increased 4 percent to $135 billion from Dec. 31, with net inflows of $3 billion in the quarter.

“Both financial advisory and asset management had their best first quarters ever,” Chief Financial Officer Michael Castellano said in an interview. “We’re continuing to gain global market share in the M&A business.”

Compensation costs climbed 35 percent from a year earlier to $275.5 million. The firm also recorded a one-time $87.1 million expense tied to staff reductions.

‘Right Manpower Complement’

“Over the last two years, in addition to aggressively hiring senior bankers, we’ve also right-sized the firm in both asset management and the financial-advisory business, to make sure we have the right skill sets for the new world,” Castellano said. “I think we’ve now got the right manpower complement to be able to drive growth in both of the businesses.”

Kenneth Jacobs was named chief executive officer in November after the death of Bruce Wasserstein, the preeminent Wall Street dealmaker who took Lazard public in 2005. Jacobs, who has worked at the firm for 22 years, had served as deputy chairman and CEO of North American businesses since 2002, shortly after Wasserstein arrived.

Lazard said last month that Castellano will retire on March 31, 2011. He will be replaced by Matthieu Bucaille, who served as deputy chief executive officer of Lazard Freres Banque in Paris.

Financial Advice

Lazard has been using its restructuring-advisory business to counter weakness in mergers and acquisitions. It was the second-ranked adviser in 2009 bankruptcy liquidations, according to Bloomberg data, and advised debtors or creditors in the top 10 Chapter 11 bankruptcies in 2009.

Companies worldwide completed $358.9 billion of deals in the first quarter, down 25 percent from the same period in 2009 and 52 percent from the first quarter of 2008, data compiled by Bloomberg show.

Lazard was the seventh-ranked financial adviser on announced deals and 12th-ranked on completed takeovers in the first quarter. The firm advised on completed deals totaling more than $33.9 billion, including Kraft Foods Inc.’s acquisition of Cadbury PLC.

Lazard employees own more than a quarter of the firm, excluding the estate of Wasserstein. Because the stakes owned by employees can be converted into common stock, the company reports earnings as though the stakes were fully exchanged instead of treating them as minority interest.

Evercore Partners Inc., the investment bank founded by former U.S. Deputy Treasury Secretary Roger Altman, reported earnings last week that beat analysts’ estimates as advisory revenue climbed from a year ago.

Lazard Business Breakdown

Financial Advisory

The Company offers corporate, partnership, institutional, government and individual clients across the globe an array of financial advisory services regarding mergers and acquisitions (M&A), and other strategic matters, restructurings, capital structure, capital raising and various other corporate finance matters. During the year ended December 31, 2009, the Financial Advisory segment accounted for approximately 65% of its consolidated net revenue. It has operations in United States, United Kingdom, France, Argentina, Australia, Belgium, Brazil, Chile, Dubai, Germany, Hong Kong, India, Italy, Japan, the Netherlands, Panama, Peru, Singapore, South Korea, Spain, Sweden, Switzerland, Uruguay and mainland China.

The Company advises clients on a range of strategic and financial issues. When it advises companies in the potential acquisition of another company, business or certain assets, its services include evaluating potential acquisition targets, providing valuation analyses, evaluating and proposing financial and strategic alternatives and rendering, if appropriate, fairness opinions. It also may advise as to the timing, structure, financing and pricing of a proposed acquisition and assist in negotiating and closing the acquisition. In addition, the Company may assist in executing an acquisition by acting as a dealer-manager in transactions structured as a tender or exchange offer. When the Company advises clients that are contemplating the sale of certain businesses, assets or their entire company, its services include advising on the appropriate sales process for the situation, valuation issues, assisting in preparing an offering circular or other appropriate sales materials and rendering, if appropriate, fairness opinions. It also identifies and contacts selected qualified acquirors, and assists in negotiating and closing the proposed sale. It also advises its clients regarding financial and strategic alternatives to a sale, including recapitalizations, spin-offs, carve-outs, split-offs and tracking stocks.

For companies in financial distress, the Company’s services may include reviewing and analyzing the business, operations, properties, financial condition and prospects of the company, evaluating debt capacity, assisting in the determination of an appropriate capital structure and evaluating and recommending financial and strategic alternatives, including providing advice on dividend policy. It may also provide financial advice and assistance in developing and seeking approval of a restructuring or reorganization plan, which may include a plan of reorganization under Chapter 11 of the United States Bankruptcy Code or other similar court administered processes in non-United States jurisdictions.

When the Company assists clients in raising private or public market financing, its services include originating and executing private placements of equity, debt and related securities, assisting clients in connection with securing, refinancing or restructuring bank loans, originating public underwritings of equity, debt and convertible securities and originating and executing private placements of partnership and similar interests in alternative investment funds, such as leveraged buyout, mezzanine or real estate focused funds. In addition, it may advise on capital structure and assist in long-range capital planning and rating agency relationships.

Asset Management

The Company’s Asset Management business provides investment management and advisory services to institutional clients, financial intermediaries, private clients and investment vehicles around the world. As of December 31, 2009, total assets under management (AUM) were $129.5 billion, of which approximately 82% was invested in equities, 14% in fixed income, 3% in alternative investments and 1% in private equity funds. During 2009, approximately 36% of its AUM was invested in international investment strategies, 46% was invested in global investment strategies and 18% was invested in United States investment strategies. As of December 31, 2009, approximately 89% of its AUM was managed on behalf of institutional clients, including corporations, labor unions, public pension funds, insurance companies and banks, and through sub-advisory relationships, mutual fund sponsors, broker-dealers and registered advisors, and approximately 11% of its AUM, as of December 31, 2009, was managed on behalf of individual client relationships, which are principally with family offices and high-net worth individuals.

The Company competes with Bank of America, Citigroup, Credit Suisse, Deutsche Bank AG, Goldman Sachs & Co., JPMorgan Chase, Mediobanca, Morgan Stanley, Rothschild, UBS, The Blackstone Group, Evercore Partners, Moelis & Co., Greenhill & Co., Alliance Bernstein, AMVESCAP, Brandes Investment Partners, Capital Management & Research, Fidelity, Lord Abbett, Aberdeen and Schroders.

U.S. Government to Earn $7B+ on Citigroup

Monday, March 29th, 2010

Months after the financial crisis and shadow banking fiasco that led the United States into a severe credit crunch and near depression, the U.S. government is making profits on selling warrants and shares of financial firms that received TARP funds.  The U.S. government could earn more than $7 billion in its $32 billion stake in Citigroup soon.  Morgan Stanley will be managing the sale of the government’s stake.  The investment bank is advising the U.S. to avoid a block sale at a discount to current prices to avoid forcing the price of Citi shares to fall quickly.

According to Mr. Smith and Ms. Solomon of the WSJ, “The U.S. government could earn a profit of more than $7 billion on its investment in Citigroup Inc. under its plan to sell off its $32 billion stake over about six months, people familiar with the matter said.

The government said it hired Morgan Stanley to manage the sale of its 27% holding in the bank, which is one of its last remaining stakes in a Wall Street banking giant. The government would sell 8% to 10% of the shares traded daily, according to people familiar with the plan.

At the current market price, the planned sale to investors would give the government a profit of about $7.19 billion on its original $25 billion investment under the government’s Troubled Asset Relief Program.

If that price level holds up, it would be the largest U.S. profit on any such TARP investment, exceeding $4.27 billion on dividends and sale proceeds from preferred stock and warrants in Bank of America Corp., according to Linus Wilson, a finance professor at University of Louisiana at Lafayette.

The Treasury’s sale plan applies only to its holding of 7.7 billion common shares. The U.S. also owns $5.3 billion of Citigroup trust-preferred securities and warrants to buy 465.1 million shares. Under the so-called dribble-out plan announced Monday, the government will initially sell the Citi shares steadily in the market rather than try a giant “block” sale at a discount to the market price.

The last big Citigroup sale in December, aimed at repaying a $20 billion government holding of preferred stock, came at a big discount to the market price after several other big bank stock sales, depressing the market price for Citi’s stock for two months.

At Citigroup’s current market price, the planned sale to investors would give the government a profit of more than $7.19 billion on its original $25 billion investment under the government’s Troubled Asset Relief Program. Above, a Citibank branch in San Francisco.

At the time of that sale, the Treasury agreed not to sell its remaining 7.7 billion shares until March 16. The agency has said it planned to sell the stock this year, and the price has recently been surging in anticipation that the overhang of government ownership would be eliminated.

The stock rose last week on reports that the government would avoid a block sale at a discount to the market, according to Jeffrey Harte, an analyst at Sandler O’Neill & Partners LP.

However, the Treasury didn’t rule out a block sale later, saying only that the sale would begin under “a pre-arranged written trading plan.” Citigroup shares fell 13 cents, or 3.02%, to $4.18 in 4 p.m. trading on the New York Stock Exchange.

Because of its low price and volatile fortunes, Citigroup stock has traded heavily over the past year. Since Dec. 17, it has accounted for 10% or more of NYSE volume on 31 different days. At its recent daily average volume of 500 million shares, the Treasury could sell 50 million shares daily at the 10% target, a pace at which the sale would take about seven months.

The government’s possible profit on the Citi stake represents an unexpected windfall from an investment originally designed “to prevent an even worse recession,” said Douglas Elliott, an analyst at the Brookings Institution, a Washington, D.C. policy research organization.”

KKR & TPG Interested in Purchasing CICC Stake from Morgan Stanley

Monday, March 1st, 2010

Over the past three years, Morgan Stanley has had difficulty managing its stake in CICC or China International Capital Corp., one of China’s most prominent investment banks.  Recently both TPG and KKR, two of the most powerful private equity firms in the U.S. announced that they were interested in purchasing this stake from Morgan Stanley.  Other firms, including Bain and J.C. Flowers had showed interest in 2008, but valuations for too low at that point for Morgan Stanley to sell.  Morgan Stanley will now be able to start its own investment bank in China without having a conflict of interest.

According to Bloomberg’s Cathy Chan, ” TPG Capital LLP and Kohlberg Kravis Roberts & Co. are in final talks to buy Morgan Stanley’s stake in China International Capital Corp., the first Sino-foreign investment bank, for more than $1 billion, said four people with knowledge the matter.

The U.S. private equity firms plan to equally split Morgan Stanley’s 34.3 percent holding in CICC, the people said, asking not to be identified because the talks are confidential. Bain Capital LLC lost out in bidding for the stake after offering less than $1 billion, one person said.

Selling the stake will allow Morgan Stanley to build its own investment bank in China after being a shareholder in CICC for a decade without having management control. It’s the bank’s second attempt to dispose of the stake, after talks with buyout firms fell apart in early 2008 on disagreements about price. New York-based Morgan Stanley invested $35 million in CICC when it was established in 1995.

“It’s a good profit and Morgan Stanley has been seeking to build its own platform as they can’t exert influence on CICC,” said Liang Jing, a Shanghai-based analyst at Guotai Junan Securities Co. “For the buyout funds, it’s nice choice of investment if you don’t mind being a passive investor.”

Morgan Stanley ceded management control in 2000 and CICC is now run by Levin Zhu, the son of former Chinese Premier Zhu Rongji.

China Fortune

The Chinese government allowed Morgan Stanley to invest in CICC in return for the expertise required to build China’s first investment bank. Elaine La Roche, the last Morgan Stanley- appointed head of CICC, stepped down in June 2000. The partners bickered about compensation, management and strategy and that lack of consensus worked against both firms, she said in a 2005 interview.

Wei Christianson, Morgan Stanley’s chief executive officer in China, declined to comment, as did Joshua Goldman-Brown, an outside spokesman for KKR in Hong Kong, and officials at TPG. The Wall Street Journal and Financial Times earlier reported the two buyout firms are close to acquiring the CICC stake.

Morgan Stanley signed an initial agreement in 2007 to buy a one-third stake in China Fortune Securities Co. Regulators declined to sign off on that venture, partly because Morgan Stanley already owned a stake in CICC, people with knowledge of the matter have said.

“They have to start building the business from scratch and it will take five years before they can expand beyond underwriting business if they decide to be on their own,” Liang said.

Top Underwriter

The China Securities Regulatory Commission said late 2007 that overseas-invested financial firms that had been operating for five years would be allowed to expand into brokerage services.

CICC was last year’s top manager of Chinese domestic equity offerings, rising from No. 2 in 2008, according to data compiled by Bloomberg. Domestic equity and equity-linked sales in China rose to 245.6 billion yuan ($36 billion) in 2009 from 232 billion yuan a year earlier.

Buyout firms including TPG, Bain Capital, CV Starr & Co., J.C. Flowers & Co. and General Atlantic LLC showed interest in the CICC stake in 2008, people familiar said at the time.

Goldman Sachs Group Inc. was the first Wall Street investment bank to gain approval to form a securities venture in China in 2004, followed by UBS AG.

Credit Suisse Group AG and Deutsche Bank AG ventures won approval to underwrite bond and stock sales in 2008 and 2009 respectively, while Macquarie Group Ltd. is in the process of getting regulatory approval. CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, formed its China venture in 2003.”

~I.S.

Investment Idea #1: Invesco (BUY, Target $25)

Wednesday, February 24th, 2010

INVESCO (NYSE:IVZ), $19.55 CLOSE

ACQUISITION

Invesco recently bought Morgan Stanley’s retail fund operations, improving its retail distribution, product mix, and reach.  These funds include the popular Van Kampen funds.  There will be many revenue synergy opportunities to maximize the distribution of equity value and municipal bond funds to investors.  More than 60% of the M&A transaction was done using equity, so Invesco certainly has capital to shore up its balance sheet.

As equities continue to firm and perhaps rally, Invesco’s AUM should also go higher, driving up fee revenue.  Post acquisition, Invesco’s AUM should increase from $420 billion to $520+ billion.

OPERATIONS

Over 80% of Invesco’s funds perform in the top half of their Lipper (mutual fund rating) categories.  It also owns the popular PowerShares India Fund, AIM Mid Cap Core Equity Fund, and AIM Intl Growth Funds.

CAPITAL STRUCTURE

With respect to its capital structure, Invesco does not have debt (like other money managers).  It did not have and money market risk (like Legg Mason) did in 2008 and also paid off $300mm in debt last year.  Its total debt to cash ratio is less than 15% and its DEBT/EBITDA ratio has fallen below 0.9x.

DATA

  1. Range 19.13 – 19.63
  2. 52 week 9.33 – 24.07
  3. Open 19.17
  4. Vol / Avg. 4.16M/4.72M
  5. Mkt cap 8.38B
  6. P/E 26.04
  7. Div/yield 0.10/2.10
  8. EPS 0.75
  9. Shares 428.78M
  10. Beta     -
  11. Inst. own 86%

PRICE TARGET

The LA team has a price target of about $25 on the stock, and the team also expects the company to increase its dividends.

Below is a breakdown of INVESCO’s competitors and their mutual fund assets.  Invesco grew 15% in January, while the industry average growth was less than 5%.

Mutual Fund Assets (not AUM)
Legg Mason 189.8
T. Rowe Price 227.7
BlackRock 721.4
Eaton Vance 86.2
INVESCO 120.0
Industry 11,000.0

Comprehensive List of Investment Banks

Sunday, November 8th, 2009

Wall Street

A.G. Edwards Keefe, Bruyette & Woods
ABN Amro KeyCorp
Allen & Company Kidder, Peabody & Co.
Allegiance Capital Corporation KPMG Corporate Finance
AllianceBernstein Kleinwort Benson
Allianz Kuhn, Loeb & Co.
Alpha Omega Capital Partners L.F. Rothschild
Ambrian Ladenburg Thalmann
Babcock & Brown Lazard
Baird Lazard Capital Markets
Bank of America Merrill Lynch Lee, Higginson & Co.
Bank of NY Mellon Leerink Swann
Bank of Nova Scotia Lighthouse Capital Advisors
Bank Leumi USA Lincoln International
Barclays Lloyds TSB Group plc
BB&T Corp. M&T Bank
BCC Capital Partners Macquarie Bank
Bengur Bryan & Co. McColl Partners
Blackstone Group McGladrey Capital Markets
BMO Miller Buckfire
BNP Paribas Moelis & Co.
Boenning & Scattergood Mizuho Financial Group
Breckenridge Group Monte dei Paschi di Siena
Brisbane Capital Montgomery & Co.
Broadpoint Securities Montgomery Securities
Brookwood Associates Morgan Grenfell
Brown Brothers Harriman Morgan Joseph & Co.
Brown Gibbons Lang & Co. Morgan Keegan
Brown, Shipley & Co. Morgan Stanley
C.V. Lemmon & Co. Mosaic Capital
C.E. Unterberg, Towbin N M Rothschild & Sons
Calyon National City Corp.
Caymus Partners Needham & Company
Canaccord Adams Neuberger Berman, LLC
Cantor Fitzgerald Newbury Piret
Caris & Company Newsouth Capital Management inc.
Carnegie, Wylie & Company NIBC
Cascadia Corp. Noble Bank
CIBC Nomura
Citigroup Oppenheimer
Close Brothers Group P&M Corporate Finance
Comerica Park Lane
Commodities Corporation Penn Capital Group
Cowen Group, Inc. Perella Weinberg Partners
Credit Suisse Peter J. Solomon Company
Curtis Financial Group Petrie Parkman & Co.
D.A. Davidson & Co. Piper Jaffray
Deka Bank PNC Financial Services
Deloitte & Touche Corporate Finance Prarie Capital Advisors
Deutsche Bank Provident Capital Advisors
Dominion Partners Provident Healthcare Partners
Dresdner Kleinwort Prudential Securities
Duff & Phelps Putnam Lovell
E. F. Hutton Rabobank
Edgeview Partners Regions Financial Services
Evercore Partners Raymond James
Fifth Third Bancorp. Robert Fleming & Co.
Financo, Inc. Robert W. Baird & Company
First Horizon National Corp. Robertson & Foley
Focus Enterprises Robertson, Stephens
Fortis Bank Royal Bank of Canada
Fox-Pitt, Kelton Royal Bank of Scotland
Friedman Billings Ramsey Rutberg & Co.
G.H. Walker & Co. Ryan Beck & Co.
Gemini Partners Sagent Advisors
Genuity Capital Markets Salman Partners Inc.
Gerard Klauer Mattison Salomon Brothers
Goldman Sachs Sandler O’Neill + Partners
Grace Matthews Saxo Bank
Greenhill & Company Schroders
Greif & Co. Scotia Bank
Growth Capital Partners Shoreline Partners
Grupo Santander Societe Generale
GulfStar Group Soundview Technology Group
GW Equity SPP Capital Partners
H. B. Hollins & Co. Stephens Inc.
Harpeth Capital Stifel Nicolaus
Halsey, Stuart & Co. St. Charles Capital
Hambrecht & Quist SunTrust Banks, Inc.
Hambros Bank Susquehanna International Group, LLP (SIG)
Harris Williams & Company SVB Alliant
Harris, Forbes & Co. T. Rowe Price
Headwaters MB TD Securities
Heritage Capital Group The DAK Group
Herrera Partners ThinkEquity Partners, LLC
Hilco Corporate Finance, LLC ThinkPanmure LLC
Houlihan Lokey Howard & Zukin Thomas Weisel Partners
HSBC Toronto-Dominion Bank
Hyde Park Capital Advisors Transparent Value
Imperial Capital, LLC Trenwith Securities
ING Group Triangle Capital Partners
Investec TSG Partners, LLC
Investment Technology Group UBS AG
Ironwood Capital Unicredit
J. & W. Seligman & Co. Union Bank of California
Janes Capital Partners Vercore
Janney Montgomery Scott Verdant Partners
Jefferies & Co. Webster Financial Corp.
JMP Securities Wells Fargo
Jordan, Knauff & Company White Weld & Co.
JPMorgan Chase William Blair & Company
Kaupthing Bank WIT Capital
KBC Bank WR Hambrecht+ Co