Morgan Stanley Joins Citigroup, Bank of America in the Doghouse

NEW YORK (TheStreet) -- Morgan Stanley (MS) shares have had a rough 2012, underperforming those of major competitors by so large a margin that the bank is now lagging even perennial post-crisis losers Citigroup(C) and Bank of America(BAC) according to certain metrics.

Morgan Stanley shares have risen just 4.69% through Tuesday, well behind Citigroup, the next-worst performer among the largest six U.S. banks with gains of more than 19% so far in 2012. Bank of America, still the top performer in 2012 despite having lost more than 15% in the past month, has seen its shares rise more than 40% after a dismal 2011 performance.

Shares are up less than 5% in 2012 while shares of most peers have posted gains closer to 20%

Morgan Stanley shares now trade at just 6.5 times estimated 2013 earnings, compared to Citigroup's 6.68 and Bank of America's 7.33 multiple according to data from Bloomberg. Wells Fargo(WFC) , which commands the highest multiple to 2013 estimates of the big six U.S. banks, is at 8.98.

Morgan Stanley also trades at just 63% of tangible book value, versus 62% for both Bank of America and Citigroup. Wells Fargo, meanwhile, trades at 1.78 times tangible book value.

One clear problem for Morgan Stanley has been the threat of a downgrade to its credit rating from Moody's Investors Service. On February 15, 2012, Moody's placed Morgan Stanley's A2 long-term ratings on review for a potential three notch downgrade to Baa2.

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Bernstein Research analyst Brad Hintz stated in a research note published Tuesday that "the most severe impact" of a credit ratings downgrade would be that it would cause derivatives clients to defect to higher-rated institutions such as Deutsche Bank(DB) , JPMorgan Chase (JPM) or Goldman Sachs(GS) . Hintz states derivatives generate approximately 15% of fixed income net revenue and 20% of institutional equities net revenue for Morgan Stanley.