Late last year, when the IPO market was much stronger, Morgan Stanley (NYSE: MS) sold a piece of its MSCI Inc. (NYSE: MXB) division to the public. Investors were certainly eager for the deal as the price range increased from $14-$16 to $16-$18. The stock price ultimately reached as high as $38.40.
But today, things got a little rougher. Morgan Stanley said its going to unload half its position in MSCI.
No doubt, with the credit crunch, there has been a flurry of asset sales. And MSCI is a solid asset, which includes a broad portfolio of financial data products like indices (more than 100,000) and major brands such as Barra.
What's more, MSCI reported its Q2 results today. Operating revenues spiked 21.9% to $108.2 million and adjusted EBITDA was up 43.4% to $48 million (yes, this is a high-margin business).
Six months of 2008 are now behind us and the stock market has not been a friendly place to most investors. Stability that was once found in household names that were industry giants is gone, and they have now been brought to their knees.
Many of them were the stocks we might have looked to in the past for stability, so you can be sure I put forward my five candidates with a little trepidation, but forward I go anyway. First a little review is in order.
Citigroup Inc. (NYSE: C) dropped from around $53 per share last year to around $30 in January and we can buy it today for around $17. Even at that price Goldman Sachs (NYSE: GS) has downgraded it to a sell and thinks there is more bad news to come. Citigroup was the largest bank in the world. Not any more.
General Motors (NYSE: GM) was the largest car maker in the world. That was before the stock tumbled from $43 to its current $11 range. A crushing blow to long time investors hoping that someone in the company could stop the ship from sinking.
MOST NOTEWORTHY: The U.S. Brokers sector, Goldman Sachs and Research in Motion were today's noteworthy downgrades:
Goldman downgraded U.S. Brokers to Neutral from Attractive since they can not find a catalyst to move the group significantly higher over the next few months given the continued deterioration in fundamentals. Goldman added Citigroup (NYSE:C) to their Conviction Sell List as they expect additional write-downs of $8.9B in Q2 and see the potential for additional capital raises. Goldman lowered their target price on Citigroup shares to $16 and recommends a pair trade of long Morgan Stanley (NYSE:MS), short Citigroup.
Wachovia downgraded Goldman Sachs (NYSE:GS) shares to Market Perform from Outperform on renewed economic fears, a likely slower pace of substantial capital raises, seasonally slower prime brokerage, and valuation.
Research in Motion (NASDAQ:RIMM) was cut to Market Perform from Outperform at JMP Securities following the weaker-than-expected Q1 report and guidance and lowered FY09 EPS estimates on increased spending.
OTHER DOWNGRADES:
Red Hat (NYSE:RHT) was downgraded to Market Weight from Overweight at Thomas Weisel.
The Wall Street Journal's "The Game" column speculates that one of the results of the Bear Stearns crash could be the push of investment banks and commercial ones closer together, which could result in better handling of volatility with more stability. Some observers think Merrill Lynch & Co (NYSE: MER), Morgan Stanley (NYSE: MS) or The Goldman Sachs Group Inc (NYSE: GS) could go that route by buying a commercial bank. Any move would force them to adhere to better reserve ratios, affect short term bank funding, and shrink balance sheets.
The Wall Street Journal reported that Google Inc (NASDAQ: GOOG) will soon make available a new service that measure hits on the Internet with the intent of helping advertisers decide where to buy ads online and would directly compete with comScore Inc (NASDAQ: SCOR) and Nielsen Online. Ad executives said Google's method could make targeting markets more efficient.
A Manhattan judge dismissed four claims made by American International Group Inc (NYSE: AIG) in its fight to regain control of a block of its shares held by Starr International, a company that once founded a lucrative compensation plan for AIG executives. AIG believes the shares held by Starr should continue to be used to fund employee compensation, the Financial Times reported.
WEB SITES:
According to Scorpio Partnership, Bloomberg reported that UBS AG (NYSE: UBS) and Merrill Lynch had slower growth in assets under management last year due to losses connected to the U.S. subprime crisis.
Merrill Lynch & Co. (NYSE: MER), at least according to rumors running amok on trading floors, may issue a profit warning and take additional writedowns on its mortgage holdings. MER shares plunged over 5.5% as a result.
I always cringe a bit when I hear of trading floor rumors. Like it or not, traders have a vested interest so it's harder for me to take what they say at face value. Much different than when newspapers report without naming sources. At least there, I'd like to believe, journalistic standards should prevail.
Indeed, while Reuters says that "A Merrill spokeswoman declined to comment on the rumors," CNBC says that sources told it the U.S. broker "is not preparing to issue a profit warning Friday."
With $30 billion worth of writedowns under its belt, it's not difficult to believe that Merrill will indeed require additional writedowns, capital raising, or asset sales. Especially in light of what's been happening the last few weeks. Not only did peers Lehman Brothers (NYSE: LEH) -- down 4% -- and Morgan Stanley (NYSE: MS) -- down 3.5% -- posted weak results this week, but financials in general announced one writedown, or capital raise, one asset sale after another.
Indeed, analysts have been cutting their forecast on financials these days, including Merrill. If a month ago analysts had predicted earnings of 44 cents a share, today the average estimate runs at 16 cents a share.
So-called chatter can have its own agenda among traders so I'm wary of such unsubstantiated rumors. Yet, in this case, its more than likely such a warning would be out sooner or later. Just look at what Citigroup (NYSE: C) -- down 3.6% -- said Thursday.
Washington Mutual (NYSE: WM) is having such trouble that it will lay-off another 1,200 people.
According toReuters, "In an e-mail, Washington Mutual said it was cutting jobs that support its home lending unit, centralizing some support functions, and focusing on 'mission-critical activities.'" The announcement was part of a cascade of tough news for financial companies.
Not only have Lehman (NYSE: LEH) and Morgan Stanley (NYSE: MS) posted poor results, but Citigroup (NYSE:C) said its expected more write-offs through the end of the year. The head of hedge fund Paulson & Co. expects total losses at banks to hit $1.3 trillion, with two-thirds of it yet to come.
Short interest in most large financial companies moved up sharply in the period ending June 15. Shares short in Wachovia (NYSE: WB) moved up 26.2 million to 177.4 million. Short interest in Bank of America (NYSE: BAC) jumped 18.2 million to 82.7 million.
Most of this means that bank, brokerage and insurance shares could be much lower at the end of 2008. Many already trade at 52-week lows, but if losses mount, they will have to raise more money, and that means dilution.
Citigroup trades for under $20 in premarket action. As a bellwether for the industry, who would be surprised to see it at $10?
Douglas A. McIntyre is an editor at 247wallst.com.
Morgan Stanley (NYSE: MS) F2Q08 Earnings Conference Call June 18, 2008 11:00 AM ET
Management Summary
Operator Welcome to the Morgan Stanley conference call. The following is a live broadcast by Morgan Stanley and is provided as a courtesy. Please note that this call is being broadcast on the internet through the company's website at www.morganstanley.com. A replay of the call and the webcast will be available through the company's website, and by phone, through July 18th, 2008.
This presentation may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which: speak only as of the date on which they are made; which reflect management's current estimates, projections, expectations or beliefs; and which are subject to risks and uncertainties that may cause actual results to differ materially.
JPMorgan Chase (NYSE: JPM) shares are falling today after competitor Morgan Stanley (NYSE: MS) reported its second-quarter profit sunk 61 percent to $1.01 billion, or 95 cents per share, after paying preferred dividends. MS beat analysts' estimates of a 92 cent per-share profit, but only after raising $1.4 billion through asset sales, which could be a bad sign for the financial sector and JPM. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on JPM.
After hitting a one-year high of $50.99 last June, the stock hit a one-year low of $36.01 in March. This morning, JPM opened at $38.53. So far today the stock has hit a low of $37.93 and a high of $38.70. As of 11:45, JPM is trading at $38.80, down $0.24. The chart for JPM looks bearish and steady, while S&P gives the stock its highest 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider a September bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in three months as long as JPM is below $50 at September expiration. JPM would have to rise by more than 30% before we would start to lose money. Learn more about this type of trade here.
Morgan Stanley (NYSE: MS), the nation's second largest investment bank, posted its second quarter numbers today. As expected, the firm saw a hefty drop in quarterly profit. The ongoing credit crisis hit the bank hard and resulted in a 61% decline in quarterly profit, a number that could have been much worse.
The reason why I say that the situation could have been much worse is that the company benefited from the sale of around $1.4 billion in assets during the quarter. This contributed to a profit of 95 cents per share for the quarter.
The 95 cents per share was actually above Wall Street estimates, as analysts had been expecting to see the company show earnings for the quarter of 92 cents per share. But that has not prevented traders from pushing the stock lower in early morning trading. As of 11:00 am, we are seeing shares trading down 5% to $38.49.
Stock Picks for Under $10 There are a lot of once-highflying stocks that have fallen below $10 and look like bargains ripe for the picking. See if CIT Group, Ford, Motorola, Tenet Healthcare, Dynegy and Interpublic. Stock Picks for Under $10 - CNBC 10 Worst Managed Companies in America With the trading year almost half over and results from the first quarter out, 24/7 Wall St. presents its latest installment of its Ten Worst Managed Companies In America list. They include Sun Microsystems, Sears, Boston Scientific, Starbucks, Sprint, Circuit City, Motorola, AMD, AIG and Pfizer. 24/7 Wall St.: The 24/7 Wall St. Ten Worst Managed Companies In America
Stocks futures fell early Wednesday, ahead of the weekly crude oil inventories figures as oil persists at high level and ahead of earnings from Morgan Stanley and FedEx as many hope to see clearer signs the credit crunch crisis has peaked and its effects begin to ease.
On Tuesday, U.S. stocks fell sharply despite solid earnings from Goldman Sachs. Goldman, though, suggested more is to come in terms of the credit crisis. In addition, several economic figures on inflation, housing and industrial production further damped the sentiment on Wall Street. The Dow industrials fell 108 points, or 0.89%, the S&P 500 dropped 9 points, or 0.68%, and the Nasdaq Composite lost 17 points, or 0.69%.
Not much is on the economic docket today. At 10:30 a.m. EDT, the government will report its weekly figures on fuel supplies. Oil prices edged above $134 in electronic trading ahead of that report and the meeting in Jeddah Sunday of oil producing and consuming nations. So far, it seems the promised increased production from the Saudis has not helped to lower the price of oil as it is weighed against increased global demand.
Goldman Sachs (NYSE: GS) reported earnings today, and while revenue and profit were -- not surprisingly -- down from a year ago period (but higher compared to the previous quarter), it actually had profits to speak of, $2.09 billion of them to be exact. Indeed, Goldman did it again, surpassing Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue with a profit of $4.58 per share and revenue of $9.42 billion.
It would be only natural to ask how Goldman made $2 billion while Lehman lost $2.8 billion. The answers are many, not the least of which is size: Goldman is the world's biggest securities firm, Lehman Brothers (NYSE: LEH) is the smallest among the four Wall Street investment banks. Other factors could include better hedging, financial decision making, diversification, management and strength of balance sheet.
To get a feel of the differences in numbers, Goldman currently holds about $14 billion of leveraged loans, down from $52 billion at their height less than a year ago in August. Residential mortgages, which include the subprime loans, have fallen to about $15 billion on Goldman's balance sheet from $19 billion last quarter. Lehman Brothers' portfolio of mortgages, including commercial loans, stood at $60.8 billion. It also has about $18 billion of leveraged-buyout loans. It is no wonder CEO Fuld took ten minutes at the beginning of the conference call to take responsibility.
Editor's Note: In Toddo's honor, this post comes from Ag and Energy specialist Ryan Krueger. Please see more at www.minyanville.com.
In the first six months of 2008, the United States Oil Fund (AMEX: USO) has seen short interest rise 140%, or two times the total float. For its part, the Powershares DB Commodity Index (AMEX: DBC) has watched its short interest climb more than 500% this year. According to Morgan Stanley (NYSE: MS), the average short interest among exchange-traded funds (ETF) in the U.S. is 10%.
I'll alert Minyanville.com readers when Congressional hearings are scheduled to address this other form of speculation, which includes windfall losses.
As for the market, it would seem the largest institutions are equally hopeful -- for the sake of their relative performance -- that this simply can't be: According to some reports I've seen, they're roughly 500 basis points underweight energy.
I'd imagine both will continue to be long shaking heads.
While Lehman Brothers (NYSE: LEH) reported dire preliminary Q2 results last week and is scheduled to release full results this morning, Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) are also scheduled to report quarterly results this week. Will the news continue to be dire, or will there be some glimmer of hope the numbers?
Goldman Sachs is expected by analysts surveyed by Thomson Financial to report second-quarter earnings of $3.41 per share, down 30.8% from the same period of last year, but up 5.6% from the previous quarter. The company has provided positive surprises recently -- by as much as 40.8%.
New York-based Goldman Sachs is one of the largest investment banking and asset management firms on the NYSE, a global leader in mergers and acquisitions advice and securities underwriting. In the past year, the company's revenues were $87.9 billion and its net income totaled $11.6 billion. Its long-term EPS growth forecast is 13.3%, which is better than the financial sector average. The consensus recommendation of analysts remains to hold Goldman Sachs.
Shares are down 17.1% since the beginning of the year, and down 23.7% from a year ago. GS trades at a P/E ratio of 8.37. Shares closed Friday at $11.54.
Six months of 2008 are now behind us and the stock market has not been a friendly place to most investors. Stability that was once found in household names that were industry giants is gone, and they have now been brought to their knees. 
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Stocks futures fell early Wednesday, ahead of the weekly crude oil inventories figures as oil persists at high level and ahead of earnings from Morgan Stanley and FedEx as many hope to see clearer signs the credit crunch crisis has peaked and its effects begin to ease.
Goldman Sachs
Editor's Note: In Toddo's honor, this post comes from Ag and Energy specialist Ryan Krueger. Please see more at 
Goldman Sachs is expected by analysts surveyed by Thomson Financial to report second-quarter earnings of $3.41 per share, down 30.8% from the same period of last year, but up 5.6% from the previous quarter. The company has provided 
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