Of course, there is another big IPO coming to a screen near you shortly. I am talking about the phenomenal Facebook deal, which is veiled under a hefty shroud of secrecy but which seems to be scheduled for the launch pad in mid-May. I wonder if that will mark the peak of the equity market this year? Morgan Stanley is the lead underwriter for this fiercely contended deal.
Morgan Stanley is gradually making headway as it emerges from its near-death experience in 2008. First-quarter profits for 2012 were surprisingly strong: net income of $1.4 billion beat analysts’ expectations. Underlying FICC revenues rose 34% to $2.6 billion from a year ago. It is interesting to compare this with Goldman Sachs, where revenues from the fixed-income, currencies and commodities unit fell by 20% in the first quarter as the bank scaled back risk. Congratulations are therefore in order to Morgan Stanley’s Colm Kelleher, co-president of the Institutional securities division, as well as Ken de Regt, the head of fixed income. However, Morgan Stanley is not only about the securities division. In 2009, it formed a wealth management joint venture with Citi’s Smith Barney operation. Morgan Stanley has the majority share. This quarter, the business made $3.4 billion in revenues and increased its pre-tax profits slightly.
There is a lot happening at Morgan Stanley in the next few months. As previously mentioned, I expect that we might see the Facebook IPO this month. Also in May, Morgan Stanley has the option to increase its holding in the wealth management joint venture by some 15%. And in June, Moody’s will give its opinion on whether it will downgrade the firm’s long-term ratings and if so by how many levels. The worst outcome would be a three-rung downgrade, which would give the firm a Baa2 rating – two levels above junk. Such a big downgrade would mean the company would have to post more collateral on some of its derivative contracts. I will be watching all these developments closely.