Theoretical Characteristics and Morgan Stanley Company Behaviour - Essay Example

?Outline Intro a. Established b. Brief History c. Location d. Core Products 2. Industry analysis a. Current Market share (Company and Rivals) b. Concentration ratio + market structure c. Theoretical characteristics and companies’ behavior 3. Price and non-price strategies a. Real life examples b. Rivals’ response 4. Financial data a. Sales b. Profit and shares (NY Stock Exchange data) c. Comparison with rivals d. Main trends and movements in the data offered (including interpretation) e. Impact of the recent crisis Introduction Morgan Stanley is regarded as one of the oldest financial services corporation of the USA that operates on the multinational market. The headquarters is located in New York City, Manhattan, and the representatives of the company, as well as subsidiaries can be found in 42 countries. Total assets that company manages or supervises, reported by the company, total $ 304 billion. The company was established in September 1935 by Henry Morgan, Harold Stanley, and others. The establishment was stipulated by the Glass-Steagall Act, that required the proper division of the banking and investment activity of the financial organizations. As Chiou and Larson (2005) emphasize the first operational year appeared rather successful, as the company managed to gain the 24% of the market share (which involved up to $ 1 billion) in managing the public offerings (up to 70% of the company’s assets) as well as private placements. In the end of 1930s the company participated in the industrial development of the USA by offering $ 100 million debentures for the US Steel Corporation, as well as obtaining the rail syndicate in 1939. The 1950s period is considered as quite notorious for the financial structure of the company, since the company was involved into the banking activity by co-managing the World Bank’s bonds. The company also signed contracts with General Motors, IBM, as well as AT&T stock and debt offerings, while the total sum for these deals reached almost $ 800 million (Choi and Jeong, 2013). The further development involved opening the first overseas department (in 1967 the Morgan & Cie International was established in Paris) in an attempt to enter the European financial securities market. This helped the Morgan Stanley to acquire Brooks, Harvey & Co., Inc. in the same year, and entered the real estate business by this merger. In 1990s, the company added another financial management approach, and started serving like the underwriter for most technical and scientific initiatives. Therefore, Morgan Stanley served as the key underwriter for Netscape, Cisco, Compaq, Dolby Laboratories, Brocade, Google and others. The core products that the company offers for the financial services market involve Global Wealth Management, Investment Management and Consulting, as well as working out proper and relevant management strategies for the institutional financial securities. Industry Analysis Financial services that are offered by the Morgan Stanley and competitors are generally intended to regulate the financial flow, stabilize the economic and financial global situation, as well as secure the managed financial reserves, debts, and investments from financial catastrophes and crises. Therefore, the financial services industry involves such spheres as banking, financial insurance, managing security, investment fund controlling, retail, payment systems development. Considering the circumstances of the 2008 financial crisis, stabilization, and reformation of the global economic system is regarded as the priority for most experienced economists. They make emphasis on developing effective financial management tools, that financial companies possess. (Horrigan, 2004) In accordance with the estimates, offered by Halah Touryalai (2013), Forbes observer, the Morgan Stanley controlled up to 40% assets of the retail clients in 2012, and the forecasts for the years 2013-2014 expect that this share will suffer 16% decrease. RBC Wealth Management’s (regional assets broker) market share, in its turn is expected to grow from 15.8 to 19.3% by 2014. However, it is an exception from the overall industry development tendency, since most brokerage companies are expected to lose up to 22.3% market share in total due to the fact that most companies tend to control their assets avoiding outsourcing. The key emphasis is made on profitability increase, while financial advisors are often less efficient than it is expected (Wu and Pandey, 2012). In accordance with the research by McCaffrey (2009) the concentration ratio for the overall industry is close to 25%. The key competitors of the Morgan Stanley are as follows: Company Customers’ Assets Market Share Dividends per share, 2012 Merrill Lynch and Co., Inc. $ 1, 02 billion 3,2 % 0,04 Citigroup Global Markets Inc. $ 1, 865 billion 14,7 % $ 0,04 The Goldman Sachs Group, Inc. $ 41, 6 billion 18.4 % $ 1,77 Morgan Stanley $ 749, 898 billion 38.7 % $ 0,2 (Frierson, 2012; Callaghan, Kleiman and Sahu, 2012; Mpoyi, 2012) Regardless of the statement that Morgan Stanley stays among the leaders of the financial services market, the further growth is restricted essentially. It is explained by the statement offered by Pandey (2007), claiming that most companies that tend to rely on financial advisors prefer addressing experts from adjacent or related market spheres: therefore, Morgan Stanley is experienced in technologies, and real estate investments. The Goldman Sachs Group specializes in managing private equities, while Citigroup Global Markets is engaged into the sphere of managing governmental bonds and investments. Such a detailed market structuring is stipulated by the intense development of the investment diversification (Su, 2004). This means that investors tend to form investment clusters, underwriting companies within similar or adjacent spheres, while financial management corporations tend to diversify portfolios of their customers. Thus, two controversial tendencies are developing in the investment sphere. Considering the market structure, it should be emphasized that investment behavior of the companies on the market is closely associated with the investment climate within every particular sphere. Therefore, as Ong and Teh (2012) emphasize, that energy sector is the most attractive investment one. It is closely linked with the recent alternative energy sources development, and high scientific and investment capacity this sector offers. However, the market structure analysis also requires considering the typical problems for the investment, and financial management industry. These are mainly associated with the described above market structure, as well as with the competitive behavior of the companies, involved in the finance management business. The revenue of the company is closely associated with the market valuations of the managed assets (as well as liquidity of the assets). Therefore, most companies tend to lower their risks by avoiding managing low liquidity assets. (Merced, 2012) Customers are generally distracted by the average fund performance, therefore, some contracts are broken due to patience lack. Previously to selecting a fund manager, the company properly studies its performance history. Even rare failures discourage potential customers. Moreover, corporate philosophy, culture, and discipline factors are studied and compared. (Craig, 2013) Price and Non-price Strategies The key strategies, applied by Morgan Stanley are mainly associated with the performance improvement. In the light of this statement, it should be emphasized that the company is mainly searching for the development strategies improvement ways. Therefore, Porter’s five forces may be regarded as the key development framework needed for the effective marketing performance of the Morgan Stanley. Competitive Rivalry within the Industry. In general, this may be regarded as the key developmental power for the company. Considering the fact that the market is highly penetrated, and the concentration level is high enough, the company is developing its sustainable competitive advantages by improving the financial and managerial experience of its personnel. Substitute products threat. In order to have its stable piece of pie, the company is making emphasis on the main investment strategies that help its customers to stay in profit. Therefore, Morgan Stanley is operating in the sphere of technology and science development, by investing Silicon Valley start-ups. Additionally, the company is involved into the real-estate investment market, and all the customers are recommended to stay within these spheres mainly. However, in order to sustain the substitutes, the company arranges training courses for the experts in order to get involved into other spheres, such as banking, farming, transportation, and others. New Entrants Threat. This threat is close to zero, since few customers would entrust their finances to the novices. The most assured way to become a new player is to get separated from the huge player. The corporate strategy presupposes that the entire organization acts like a single structure, and can not be separated. This also offers essential competitive advantage as such a structure is intended for the timely informational backup of the investment strategies. Bargaining power of the customers. The high experience level of the company, as well as the extended information network helps to lower the pressure from the side of the audience. Moreover, the company is developing specific pricing strategies, that allow its managers and executives offer the best option, suitable for each particular customer. Bargaining power of the suppliers. The company’s supply chain is mainly based on the information and timely data update. Additionally, considering the key principle of the company’s operation, it should be emphasized that the company can rely on its own “supplies” mainly In accordance with the research by Choi and Jeong (2013), European companies stand for the transformation of the banking system. Breaking negative interconnection between governments and banks will help to create the principally innovative economic climate in the European financial sector. As Frierson (2012) emphasizes, the most obvious decision for such reformation of the financial system is the establishment of the European Bank Union. This will help to preserve the single European market for the investment and security services, as well as develop the legislative base, intended for the proper regulation of the financial opportunities. Financial Data The latest global financial tendencies associated with the growth of the banking sector, as well as deeper legislative regulation of the investment sphere, became the key reason for the financial restructuring of the assets, held by financial services companies. Therefore, Morgan Stanley suffered slight reduction of the managed assets, and experienced revenue decrease in 2012. $ million Morgan Stanley Goldman & Sachs Merrill Lynch and Co Citigroup Global Markets Investment Banking $ 4, 991 $ 1, 360 $ 5, 179 $12, 003 Total non-interest revenues $ 32, 064 $ 23, 619 $ 23, 806 $ 11, 683 Non-interest expenses $ 26, 289 $ 22, 642 $ 28, 988 $ 12, 573 Total Assets $ 749, 898 $ 41, 6 $ 1, 02 $ 1, 865 Shareholders’ equity $ 62, 049 $ 68, 718 $ 59, 040 $ 32, 706 The company’s earnings per share, as well as the price per share can not be regarded as stable. In accordance with the research by McCaffrey (2009), it should be stated that the actual poor financial performance of the Morgan Stanley in 2012 is caused by the poor risk management, as well as weak marginal capital. In accordance with the research by Mpoyi (2012), the company’s revenues is expected to lower due to several reasons. Thus, on April, 3 2012 the company was accused in “misconduct and negligence in residential mortgage loan servicing and foreclosure processing”. Therefore, monetary sanctions had been imposed. The size of the sanctions had not been disclosed, nevertheless, the company suffered essential drop on the Stock Exchange (from $ 20, 3 to $ 17, 28 per share) On April 25, 2012, one of the company’s real estate executives, operating in China, was accused in violating the anticorruption law, and the company’s shares dropped to $ 14, 95 per share. Additionally, the company experienced up to $15 million losses caused by the illegal actions of that executive (Mpoyi, 2012). In June the shares price dropped extremely low ($ 12, 36 per share), which was caused by the violations of the exchange rules, and the company was fined by Nasdaq OMX. Despite of the fact that these violations were caused by the automated buy/sell system error, the company experienced decrease in the amount of the managed assets. Further decrease of the operating income, as well as net revenues in September are associated with the FINRA sue against Morgan Stanley. The company was accused in improper training of the financial advisors, and was bound to pay up to $ 2.5 million restitution. Additionally, this improper training caused improper recommendations for the retail brokerage customers, and the company had to reallocate the expansion resources for the proper training of the financial advisory personnel in most US departments. Morgan Stanley. Price per Share 2012-2013 Goldman Sachs Price per Share 2012-2013 City Banking Group Price per Share 2012-2013 As the charts reveal, the companies found themselves in similar marketing situations, since the second quarter of the year 2012 was featured with the extensive drop of the share prices. In general, this tendency is explained by numerous reasons and factors, nevertheless, the most relevant explanation of such a tendency is offered by Touryalai (2013). In accordance with the given analysis of the financial trends and tendencies, the companies experienced this drop due to the dynamic development of the financial control institution, as well as the growing interconnections between the parallel financial markets. Frierson (2012) in his turn emphasizes that the development of these interconnections could be regarded as an attempt of creating a steady and combined global financial management structure, nevertheless, the banking investment, as well as wealth management organizations were not ready to unite the control tools. The further growth tendency that can be observed through the September 2012 – February 2013 period is explained by the extensive development of the additional financial services, offered by the companies. Therefore, while traditional investment objects lose their attractiveness for the customers (Frierson, 2012), IT start-ups become more and more popular. Therefore, considering the intensive development of the IT sphere, most investors are attracted by this comparatively innovative investment. Hence, Morgan Stanley is continuing its common practice of underwriting science and technology development, and supports several initiatives by Google. Some clients prefer the practice of Angel Investments, which presupposes complete financial support for potentially beneficial initiatives started by a group of individuals. Additionally, some investors prefer organizing angel groups in order to unite their financial and managerial opportunities. Despite of the fact that Morgan Stanley is not involved into any group, it manages and regulates the activity of several groups involved into Social Media investment. (Callaghan, Kleiman and Sahu, 2012) Additionally, the companies tend to change their approaches towards the debt resolution practices. Considering the 2008 crisis, banks and investors have become very accurate and careful with debtors, and prefer not to invest into companies with international debts (Callaghan, Kleiman and Sahu, 2012). In accordance with the letter to shareholders, issues in 2009, Morgan Stanley assured their shareholders, that observable inputs would be considered more carefully, and decided on the basis of the product type, offered by the invested company, as well as its policy for debt resolution. Additionally, the company is reporting the enforcement of the analytic department in order to increase the business forecast efficiency. Considering the fact, that the actual importance of forecasting is high enough, the key factors that are taken into consideration by the experts of Morgan Stanley involve: Political and geopolitical global situation; Analysis data of various market spheres, involving global equity, fixed income, as well as corporate lending practices performed by the leaders of the niche; Credit rate of the company The crisis also made the company change its approaches towards institutional securities. At the moment, the company performs capital raising activity within the frames of the institutional security activities only through wholly owned subsidiaries (Mpoyi, 2012). After the crisis the company also changed its key approach towards corporate transactions, and since 2010 most transactions are performed in cooperation with the affiliate companies. Considering the changed approaches, the key financial data is changed in accordance with the latest accounting policies. Hence, derivatives, and corporate contract sums experienced at least 18% growth, and totaled $ 499, 749 million in 2012, while total receivable assets, including customers assts, and purchased securities totaled $ 2,964,040 million. Conclusion Morgan Stanley is regarded as one of the leaders of the banking investment industry, as well as wealth management and financial security services. Considering the fact that Morgan Stanley is mainly operating on the US financial market, the offices are also opened in Europe and Asia. The financial and analyst activity of the company is mainly restricted with the investment approaches common for the real estate, and IT investment spheres, nevertheless, the customers assets managed by Morgan Stanley are diversified in order to lower the investment risks, and improve the investment efficiency. Financial performance showed in the financial reports, reflects the efficiency of the investment reports, as well as Stock Exchange data reveal the key financial trends and tendencies, showing that the third quarter of the year 2012 was featured with the essential drop of the share prices. These drops are explained by the failed attempt to restructure the financial and economic management systems, as well as create unified banking management and legislation systems. Nevertheless, the further period is featured with the intensive share growth. The sues, that the company was involved into in 2012 also caused the essential drop of the prices, therefore, the company had to restrict its expansion. Nevertheless, the financial tendencies restricted the effective growth, and Morgan Stanley had to penetrate the real estate market in order to diversify its investment strategies. Reference List Callaghan, J. H., Kleiman, R. T., & Sahu, A. P. (2012). The Investment Characteristics of American Depository Receipts. Multinational Business Review, 4(1), 29 Chiou, I., & Larson, S. J. (2005). The Effects of a Stock Index: Evidence from the Annual Rebalancing of the MSCI USA Index. Journal of Academy of Business and Economics, 5(2), 46 Choi, B. P., & Jeong, J. (2013). Diversity and Firm Performance: An Analysis of Different Level of Management Composition. International Journal of Business Research, 13(1), 87 Craig, S, (2013) Despite Improving Profits, Morgan Stanley’s Path Is Uncertain. NY Times online. Retrieved from http://dealbook.nytimes.com/2013/01/18/morgan-stanleys-4th-quarter-profit-of-481-million-beats-estimates/ Frierson, R. D. (2012). China Investment Corporation Beijing, People's Republic of China: Order Approving Acquisition of an Interest in a Bank Holding Company. Federal Reserve Bulletin, B31 Horrigan, M. W. (2004). 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Malaysian Real Estate Investment Trusts: A Performance and Comparative Analysis. International Journal of Economics and Finance, 4(5), 73 Pandey, V. K. (2007). An Examination of Structural Change and Nonlinear Dynamics in Emerging Equity Markets. Journal of International Business Research, 6(1), 77 Su, B. W. (2004). The U.S. Economy to 2012: Signs of Growth: Based on the Assumptions Used in Developing Economic Projections, Real GDP Is Expected to Grow during the Next Decade, While Productivity Remains Strong and Inflation Remains Stable. Monthly Labor Review, 127(2), 23 Touryalai H. (2013) Merrill Lynch, Morgan Stanley, Wells Fargo Keep Losing Market Share, And They May Be OK With It. Forbes. Retrieved from http://www.forbes.com/sites/halahtouryalai/2012/10/04/merrill-lynch-morgan-stanley-wells-fargo-keep-losing-market-share-and-theyre-ok-with-it/ Wu, C. Y., & Pandey, V. K. (2012). The Impact of Housing on a Homeowner's Investment Portfolio. 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