Morgan Stanley is a global financial services firm that advises, originates, trades, manages, and distributes capital for government, institutions, and individuals. It is an organization that strives to achieve success through adhering to its four core values, including putting its clients first, leading with quality ideas, dedicating itself to diversity and inclusion, and giving back. When compared to its competitors, Morgan Stanley executives tend to focus on wealth management instead of derivatives. On its investment banking side, the organization tends to focus on the high risk but high-growth technological industry. The organization was the core underwriter for various technological companies, including Google, Inc., Groupon, Inc., and Salesforce.com, among others. The organization has gained a global presence through acquisitions and joint ventures.
The investment bank has seen a growth in its net revenues and net income between 2008 and 2019. In 2008, Morgan Stanley recorded a consolidated net revenue of $ 24,739,000,000 (Morgan Stanley, 2008). By 2019, the organization's net revenue had increased significantly, recording a net revenue of 41,419,000,000 (Morgan Stanley, 2019). For 2008, the investment bank’s consolidated net income $ 1,707,000,000. When compared to the net income in 2019, there was a substantial income increase, with the organization recording $ 9,042,000,000. The difference between the net income in 2008 and the net income in 2019 is about $ 7,335,000,000. The earnings per diluted common share increased from $ 1.45 to $5.19 between 2008 and 2019 (Morgan Stanley, 2008; Morgan Stanley, 2019). In both the 2008 and 2019 fiscal years, institutional securities were the main contributors to the organization's net revenue. In 2008, revenue from institutional securities was 67% of the company's net revenue. In 2019, institutional securities revenues formed about 50% of the organization's net revenue. Wealth management and investment management were the second and third contributors, in that order, to the organization's net revenue for both fiscal years.
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Balance Sheet Analysis
A balance sheet analysis shows a significant increase in total assets, total liabilities, and total equity between the two fiscal years. The company’s total assets increased by 24.42% to $ 676,764,000,000. The organization's total liabilities and total assets also increased by 22.81% and 40.20%, respectively.
A comparison of the organization's past and current leverage position shows a decrease in the total debt to equity ratio. The debt to equity ratio shows the extent to which the organization is financing its operation using debts compared to its wholly-owned funds. A comparison between the 2008 and 2019 fiscal years show a decrease in the debt to equity ratio by 29.06%. Therefore, the risk of investing in the organization's stocks to the shareholders has reduced significantly.
The comparison of the 2008 and 2019 book values shows a substantial increase from $ 30.16 to $ 77.07. On the other hand, the organization's market value also increased from $ 13.18 to $ 50.00 between 2008 and 2019 ( Yahoo Finance, 2020 ). Be that as it may, a comparison between the organization's book value and the market value shows a consistent undervaluation of the company stocks. In 2008, while the book value was $ 30.16, the company's stocks traded at $ 13.18 per share. Although the organization's market price increased to $ 50.00 by 2019, the stocks were still undervalued since the book value had already risen to $ 77.07.
How the Great Recession Changed Banking
According to Edelmann et al. (2017), the banking interest experienced a drop in profitability following the Great Recession of 2007 to 2008. However, based on the analysis of Morgan Stanley, the net income between 2008 and 2019 increased significantly. However, the leverage exposure, as discussed by Edelmann et al. (2017), decreased in the aftermath of the great recession. This is also true in the case of Morgan Stanley. The organization's debt-to-equity ratio was reduced by about 29%. The company focuses mainly on institutional securities as its primary source of revenue. In other words, the company has placed a great focus on facilitating client trades, as suggested by Edelmann et al. (2017). In sum, although Morgan Stanley's profitability trend goes against the article's suggestion, other aspects, including the decrease in leverage position and the increased focus on facilitating client trades, are true.
Public Offering Calculation
Share issued= 19,000,000
Offering Price per Share = $ 12.80
Selling Price per Share = $ 13.50
Return to the Investment Bank = (13.50-12.80) ×19,000,000 = $ 13,300,000
If the IPO price is overstated, and it sells below the offering price, the organization will not be able to raise the anticipated funds ( Bonaventura et al., 2018 ). If the offering price is $ 12.80 and the selling price is $ 12.25, the raised funds will fall short of the target by:
= (12.80-12.25) ×19,000,000 = $ 10,450,000
Conclusion
Morgan Stanley primarily targets to achieve success by focusing on wealth management and investing on the high risk high growth technological industry. Between 2008 and 2019, the organization experienced significant growth on its net revenue and net income. The analysis of Morgan Stanley’s financial documents shows a growth trend as opposed to scholars’ analyses, which suggest a drop in profitability in the aftermath of the Great Recession of 2007 to 2008. Aside from the debt-to-equity ratio, which reduced by 29%, the company’s record of profitability and earnings per diluted common share shows an upward trend.
References
Bonaventura, M., Giudici, G., & Vismara, S. (2018). Valuation and performance of reallocated IPO shares. Journal of International Financial Markets, Institutions and Money , 54 , 15-26.
Edelmann, C., & Hunt, P. (2017). How the Great Recession Changed Banking. Harvard Business Review Digital Articles, 2–9
Morgan Stanley. (2008). 2008 10-K form. www.annualreportowl.com/Morgan%20Stanley/2008/Annual%20Report
Morgan Stanley. (2019). 2019 10-K form. www.banktrack.org/download/annual_report_2019_46
Yahoo Finance. (2020). Retrieved 7 October 2020, from https://finance.yahoo.com/quote/MS?p=MS
