NEW YORK: Morgan Stanley plans to spend more money on share buybacks and dividends in 2015, executives said, in a step that could help the bank reach a key profitability target this year.
The bank needs approval from the U.S. Federal Reserve before it can put more money toward shareholder rewards. Morgan Stanley has submitted a capital plan for 2015, but executives said on Tuesday that they are wary of detailing specifics until they receive a green light from the Fed.
"What we look for is steady increases in capital returns over time - no discontinuous move - and our approach continues to focus on both share repurchase and dividends," Chief Financial Officer Ruth Porat said in an interview. "But, beyond that, we'll wait till we hear from the Federal Reserve."
Last year, Morgan Stanley received permission to double its quarterly dividend to 10 cents per common share and set aside $1 billion for buybacks through the first quarter of 2015. Altogether, it asked the Fed for permission to pay out 30 percent of its earnings through dividends and buybacks.
An investor and several brokerage analysts who spoke to Reuters estimate that the bank will use about half of its profit to buy back shares and pay dividends. That would equate to about $2.85 billion, based on the average analyst estimate for Morgan Stanley's 2015 net income.
Shareholders have waited years for Morgan Stanley to increase its payouts to catch up with big bank rivals that are already spending more than half of their earnings to investors, on average, according to Credit Suisse analysts.
There are signs that Morgan Stanley is more confident about its progress in fixing itself. In December, the bank said it was paying employees more of their bonuses upfront, and deferring less, because it was on solid enough financial footing to do so.
But the bank still has work to do to get its financial house in order. Its return on equity, a measure of how effectively it earns money using shareholder capital, was just 4.5 percent in the fourth quarter, excluding an accounting adjustment. The return on equity lags Goldman Sachs Group Inc's and JPMorgan Chase & Co.'s, as well as Morgan Stanley's own target of 10 percent.
Gorman reiterated that target on Tuesday, but said it was too dependent on market factors outside of his control to give a timeframe to reach it. He only promised it would take less than five years.
Morgan Stanley can improve return on equity by boosting profits or reducing shareholder equity through stock buybacks. Investors expect the bank to do both.
"They do need to return more capital to shareholders to make further progress," said the investor who expects Morgan Stanley to pay out 50 percent of its earnings this year. He spoke on the condition he and his company not be named to preserve business relationships.
But, he added, the Fed's involvement is "a big wild card, and that's not going to change."- Reuters
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