deal to acquire
isn’t a steal. It still might prove to be a very good business decision.
The timing of the transaction is interesting: Morgan Stanley said it has been looking at this deal for several years, and Eaton Vance wasn’t trading at a huge discount to where it has been over that period of time—only 5% below its five-year average share price as of Wednesday.
But among things that have changed recently are some in Washington. For a long time running, an investor concern around Morgan Stanley was that the Federal Reserve’s shift to a new way of determining capital requirements would increase the bank’s required minimum. Instead, Morgan Stanley did relatively well in this year’s stress test, and its new requirements actually came in lower than many analysts had anticipated based on prior exams.
Meanwhile, Morgan Stanley and peers have halted share buybacks, initially by big banks’ own choice but now by Fed rules. The bank also has been generating capital through strong earnings across capital markets and investment management, bolstered by the Fed’s market interventions. The upshot is that the bank effectively has something like $10 billion in capital resources surplus to requirements.
James Gorman, Morgan Stanley’s chief executive, was quick to point out on a call with analysts that the bank’s decision to do the deal was based on a decade-plus strategic view, not just on recent capital developments. Still, even a key long-term rationale—bringing together Eaton Vance’s asset-management products and Morgan Stanley’s wealth-management distribution—is best served by acting now. Some of Morgan Stanley’s major wealth competitors are also banks, such as
Bank of America
Goldman Sachs Group,
with reasons to bolster their investment-management business at a tough time for more