International rating agency DBRS has confirmed all ratings for Morgan Stanley, with stable trends, following a detailed review of Morgan Stanley’s operating performance and credit fundamentals.

The company’s ratings are underpinned by its strong franchise, characterized by a well-diversified global mix of businesses, high margins and resilient earnings power, DBRS said.

In DBRS’s view, Morgan Stanley’s sound liquidity, appropriate capitalization, skillful risk management and effective controls also support the ratings. “While risk appetite has increased under new senior management, the rewards have increased even faster,” it noted. “Moreover, the company has ample capacity to cover adverse events from earnings.”

DBRS said it views the company’s powerful institutional securities businesses as an important franchise strength that supports its ratings. “Encompassing investment banking, equity sales & trading and fixed income sales & trading, client financing and other activities, this business segment generates the bulk of Morgan Stanley’s overall earnings from a broadly-diversified range of activities,” the rating agency noted.

“The company is a leading provider of investment banking services globally and has built up top tier market positions in most securities businesses where it competes. As a leader in prime brokerage, the company has benefited from the explosive growth of hedge funds. Rapid growth in fixed income has made these businesses the largest contributor to net revenues and further diversified the company’s franchise,” it said.

DBRS added, “Growing globalization of capital markets is also strengthening the company’s franchise. International revenues have grown strongly and are now contributing over forty percent of revenues. Extensive world wide reach is a critical competitive advantage for Morgan Stanley.”

Another positive rating factor is the diversification added by the company’s asset management and global wealth management businesses that leverage the overall franchise, the rating agency said. “New management’s revitalization of these businesses has started to raise their earnings contribution, with further upside potential if the current trajectory is maintained.”

DBRS also notes that while the spin-off of the company’s Discover credit cards and payment processing services unit initially reduces diversification, this has been largely offset by increased diversification within institutional securities. Also, Discover did not offer extensive synergies with the company’s overall franchise, it said.

DBRS sees Morgan Stanley facing a number of challenges, which include maintaining current momentum in Institutional Securities in the face of increasing competition and a less favorable market environment. Sustaining the pace of progress in asset management and global wealth management is important to further diversify the company’s earnings base, it added.

“Morgan Stanley needs to maintain the balance between its risk–taking and returns generated from risk positions,” it said.

DBRS expects Morgan Stanley to continue to demonstrate the effectiveness of its risk management processes during the ongoing turbulent markets that exposes broker dealers and other market participants to significant risks.

“Finally, as the company grows, particularly internationally, it needs to succeed in maintaining effective risk management, controls and its culture across a larger, more complex organization.”