Standard & Poor's and HSBC Securities analysts are disagreeing on the impact of the well publicized slew of personnel departures including former president Stephan Newhouse and vice chairman Joseph Perella to hit Morgan Stanley in recent weeks. S&P believes the departures impact the firm's creditworthiness and reputation and prospects for revenue generation, while HSBC analysts view the departures as a blip on the radar screen.
Tom Foley, credit analyst at S&P, said the management exits justify its twice changing of Morgan Stanley's outlooks in recent weeks--from positive to stable to negative--as earnings could be impacted. "The amount of talent that has walked out the door can impact the strength of a franchise," the analyst stated. He noted the dissentions come from Morgan Stanley's institutional securities division, which accounted for 55% of consolidated net revenues and 61% of pre-tax earnings. As a result, S&P revised its outlook on Morgan Stanley from positive to stable on March 30 and from stable to negative on April 15, which caused the 4 3/4s of '14 to widen five basis points.
Van Hesser, head of credit research for North America at HSBC, disagrees. He points out Morgan Stanley's earnings have come in better than expected for the past two quarters despite the brewing personnel turmoil. And even with the departures, he wrote in a report that S&P would be overreacting if it downgrades Morgan Stanley, because a downgrade would put Morgan Stanley's rating on par with those of Bear Stearns, which Hesser implies is of a different echelon. "Do a handful of employees really make that kind of difference?" asked Hesser, referring to the departures.
