Morgan Stanley is having trouble convincing the market it’s a good investment. But as Ladenburg Thalmann research analyst Dick Bove argues in a research note this morning, the company is healthier than the market’s perception of it.

The firm released its quarterly report yesterday (for the period ending Aug.31), and it described some developments that should bolster the firm’s image in the eyes of investors. The risk of course is the market doesn’t accept the assurances—and so far, it hasn’t.

Reasons to believe: According to Bove, in the quarterly report, “The firm provided an extensive breakdown of its marks and other obligations. One key fact that emerges is that the firm’s exposure to Lehman counterparty risk is minimal and not the multi-billion number that had been thought to be the case.”

Additionally, Mitsubishi UFJ Group, Morgan’s Japanese suitor, has indicated that it is still good for the $9-billion investment it had promised, despite Morgan’s stock slide since the deal was announced. In fact, Morgan’s stock was more than triple its current value (MS).

“This investment plus the $50 billion it is believed the company has set aside to meet demands for repayments is thought to have defensed (sic) the company’s balance sheet,” writes Bove in his note. “Plus there is always the Federal Reserve’s Discount window.”

Bove fervently hopes that the market will recognize the value of Morgan Stanley’s participation in the capital markets, that “left to run its businesses, it is likely to produce continuous profits, even though at much reduced rates.” But he recognizes that $59 billion can’t save a $988-billion balance sheet if things go entirely South in terms of market confidence, which he says, “is still the key variable in this story as it was in Bear Stearns and Lehman.”
As for a recommendation, Bove is “Neutral.” He writes, “After seeing my buy recommendation on Lehman turn into a bankruptcy, I would not be willing to certify any result for Morgan Stanley at this point.”