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Morgan Stanley Rewards through Repurchases and Dividends

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Oct. 20 2015, Published 10:59 a.m. ET

Risk management

Morgan Stanley (MS) has focused on reducing riskier assets from its balance sheet. The company’s common equity Tier 1 and Tier 1 risk-based capital ratios under US Basel III advanced approach transitional provisions were approximately 13.9% and 15.6%, respectively, as of September 30, 2015. The company’s book value and tangible book value per share were $34.97 and $29.99, respectively.

Morgan Stanley declared a dividend of $0.15 per common share, which was in line with the previous quarter and translated into an annualized yield of 1.8%.

Here’s what dividend yields look like for Morgan Stanley’s peers:

  • Goldman Sachs (GS) – 1.2%
  • JPMorgan Chase (JPM) – 2.6%
  • Bank of America (BAC) – 1.1%
  • Wells Fargo (WFC) – 2.6%

Together, these banks make up approximately 21% of the Vanguard Financials ETF (VFH).

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Stock repurchases

During the third quarter, Morgan Stanley repurchased 17 million shares for a total of $625 million. This translated into an average price of $36.70 compared to a current price of approximately $32. The repurchased stock formed 0.9% of the company’s total outstanding shares.

Morgan Stanley has engaged in regular stock repurchases over the past few years and is planning to deploy further capital for repurchases, especially in weaker markets.

The ownership pattern dominated by mutual funds, financial institutions, and ETFs also reflects the stability investors see in the stock’s performance.

The company generated return on equity of 5.6% in 3Q15. Excluding adjustments, the ratio stood at 3.9%. However, in 2Q15, the company generated return on equity of 9.9%, and excluding adjustments, the ratio was 9.1%.

The decline in the current quarter earnings has been mainly due to lower fixed income earnings. Historically, the company has generated return on equity in the range of 9%–11%.

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