Modest Value

ValueAct Capital Management has paired its new $1 billion-plus stake in Morgan Stanley with support for Chief Executive James Gorman. But the activist investor’s logic for investing in the Wall Street firm only goes so far. Jeff Ubben, the ValueAct boss, reckons shareholders just don’t get Morgan Stanley, which now collects 80 percent of its net income from wealth management, investment management and M&A advisory services, compared with just 30 percent around a decade ago. Ubben argues other highly regulated businesses hog too much attention. It’s not that simple. Trading absorbs most of the $43 billion in capital at Morgan Stanley’s investment bank – almost two-thirds of the firm’s total. Performance in fixed-income trading is volatile and subpar. Other businesses deserve credit, but shareholders fully grasp that. The roughly 82 percent of book value at which the firm trades is on the nail for a company that only managed an annualized return on equity last quarter of 8.3 percent. If the businesses Ubben likes are really better, it isn’t showing yet.

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