Boston, MA 04/02/2014 (usastockreports) – Morgan Stanley (NYSE:MS)’s shareholders have their fingers crossed as the U.S federal reserve deliberates on whether to allow the bank, to carry out its first stock buyback since the financial crisis of 2009. Investors still maintain that even if the bank is given the greenlight, it will still be difficult for shareholders to hit their returns target.
Return on equity target essentially measures how much profit a bank makes using its shareholders funds. An ROE of 10% in this case will show how solid Morgan Stanley is financially able, to pay for new capital. The banks return on equity has been languishing below 10% since 2006. The bank will need to jump the hurdle sooner than later to avoid receiving the wrath of its shareholders.
Morgan Stanley Passes Stress Test
Good news that should impress Morgan Stanley (NYSE:MS)’s Shareholders lies on the fact that the bank passed its stress test. A requirement of the Dodd Frank financial reform, examines the ability of financial institutions to hold up in times of extreme financial crisis. Part of the test involved the bank submitting the amount of capital it would be willing to spend for stock buybacks as well as paying out dividends.
The bank continues to pick itself after the hard felt financial crisis that nearly crippled the entire industry. The bank has been restricted to paying nominal dividends and has not had a meaningful buyback program as it tries to find its way in the industry.
Morgan Stanley (NYSE:MS) has been restricted to paying little cash to its investors as it diverted most of its funds to the purchase of Smith Barney Brokerage business from Citigroup Inc (NYSE:C). The deal, which was struck four and half years ago and finished last year saw the bank pay a total of $11.7 billion. How fast the Fed allows the bank to spend on buybacks will mostly influence its ability to reach the 10% desired target on ROE.