December 20, 2007 / 3:33 PM / 11 years ago

UPDATE 1-RESEARCH ALERT-Citigroup cuts Morgan Stanley target

 (Adds background, more analyst comments)
 Dec 20 (Reuters) - Citigroup cut its price target on Morgan Stanley’s (MS.N) stock to $75 from $80, to reflect lower earnings estimates driven by dislocation in credit markets.
 In a research note dated Dec. 19, the brokerage lowered its 2008 estimates on the company to $7.25 from $7.80, while 2009 estimated were cut to $8.00 from $8.25.
 On Wednesday, the investment bank had reported a staggering fourth-quarter loss fueled by $9.4 billion of losses in subprime mortgages and other assets.
 However, Citigroup reiterated its “buy” rating on the stock, saying core earnings power at the investment bank has been underestimated.
 Every major institutional business outside of mortgage produced excellent results, and the mortgage overhang is behind the company, analyst Prashant Bhatia wrote in the note.
 He also noted that subprime mortgage exposure declined more than 80 percent, driven by aggressive write-downs.
 China has agreed to pump $5 billion into the bank, making it the latest capital infusion by a sovereign wealth fund into a major investment bank hurt by this year’s credit crunch.
 Bhatia said while a capital raise is not optimal from an earnings dilution view, it positions the franchise well and enables the firm to put the mortgage issues behind it and to focus on growth.  (Reporting by Purwa Khandelwal in Bangalore; Editing by Pratish Narayanan)  

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