Dan Loeb is fighting on many fronts these days. First we saw him going long on Herbalife Ltd. (NYSE:HLF) with the acquisition of 8 percent stake and calling Bill Ackman’s short thesis on the company ‘preposterous’. In the same investor letter of Third Point, he disclosed a long position in Morgan Stanley (NYSE:MS). Loeb accumulated an undisclosed amount of stake in the bank over the last quarter of 2012, at the average price of $16.77 per share. He believes that Morgan Stanley (NYSE:MS) is at the brink of a turnaround. He said the bank’s investment banking advisory and equity sales, and its trading businesses has ranked consistently among the top three in the field. His estimation is that MS is valued at twice of the current share price.
So what made Loeb turn his attention to Morgan Stanley (NYSE:MS) now? Apparently it is the bank’s management that has caught his eye, which in his words is, “focused on growing its good businesses while consolidating and successfully fixing its previously troubled Wealth Management business”. Loeb also showered praise on the CEO, James Gorman, who he thinks is capable of steering the business in the right direction.
In Loeb’s statement, he says that he expects the bank to fix its Fixed Income, Currency, and Commodities (FICC) sales and trading arms in this year to realize the full value of its strength. We know that with activist investors, this is not just a suggestion, this is what they want them to do. A few days into the acquisition, Loeb has started asking questions. He is not impressed by the performance of one board member, who in his words is “not up to the job of turning around great institutions”. The remark is a shot at Roy Bostock, an ex-board member of Yahoo! Inc. (NASDAQ:YHOO) who now sits on the board of Morgan Stanley (NYSE:MS). Interestingly, at one point when Loeb was knee deep in Yahoo! Inc. (NASDAQ:YHOO) battle, he referred to the members of Yahoo’s board as ‘clowns’. Loeb also has reservations about the amount of compensation paid to the executives at Morgan Stanley. He says that the amount ($357,000 on average in 2011) exceeds what Citigroup Inc. (NYSE:C), $283,000 and JPMorgan Chase & Co. (NYSE:JPM), $251,000 paid to their officials even though Morgan Stanley is a smaller bank. However, he thinks that in some cases, the offered package is justified, for example in the case of the CFO, Ruth Porat, who is justly compensated.
While Loeb looks forward to the bank restructuring its expenditures, Morgan Stanley announced that it will lay-off 1,600 workers this year, which will focus on senior staff members.
There is nothing that hints that Third Point acquired a huge stake in Morgan Stanley (NYSE:MS), it is not among the top five holdings of the fund’s Q4 stat sheet. Third Point’s fifth largest holding Murphy Oil Corporation (NYSE:MUR), is estimated to be worth $283 million, judging by the amount of shares owned in 3Q2012 and the closing price of Murphy Oil Corporation (NYSE:MUR) on Dec 28. So whatever Third Point is holding of Morgan Stanley, it has to be below $280 million which at most could be 0.7 percent of the company’s net worth. Even if the position is tiny, it is certain that Loeb is capable of shaking up any company, and the bank’s management recognize that. James Gorman, CEO of Morgan Stanley, called Dan Loeb after he made his acquisition public, to welcome him as a shareholder.
Morgan Stanley (NYSE:MS) is up 6.2 percent in trading YTD.