Morgan Stanley

Morgan Stanley on the Fannie, Freddie hot seat

Jim Kim — Thu, 28 Aug 2008 13:36:55 -0400

We tend to think of Goldman Sachs as the firm with the most influence in Washington, given the many former execs that have ended up in high public service jobs. But when it comes to the big quagmire that Fannie Mae and Freddie Mac are stuck in, the firm with the most reputational capital on the line is now Morgan Stanley, which was the low bidder for the job. Breakingviews notes that John Mack has dispatched bankers Ruth Porat and Robert Scully to sort out the mess for former Goldman Sachs exec, now Treasury Secretary Henry Paulson. It will be up to them to propose a way to salvage the GSEs. But what if the two mortgage giants implode anyway? I doubt anyone will blame Morgan Stanley. That said, a brilliant plan would generate lots of goodwill.

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Credit crunch to lead to more outsourcing

Jim Kim — Wed, 13 Aug 2008 17:49:47 -0400

We've been talking for years about how more financial services firms are outsourcing more knowledge-oriented work abroad. Junior level research and analysis started getting offshored a few years ago. The New York Times notes that the trickle has now become a flood. Top outsourcing firms in India are seeing a healthy bump in business, apparently. The paper notes Morgan Stanley has about 500 people in India doing research and statistical analysis. About 100 of Goldman Sachs' 3,000 employees in Bangalore work on research. JPMorgan has 200 analysts in Mumbai working for its investment banking operations. Another 125 analysts in Mumbai support the bank's global research division. Citigroup has no fewer than 22,000 employees in India, a few hundred of which work on research. So what does this mean for kids aspiring to junior level analysis jobs? By one estimate, 40 percent of research-related jobs on Wall Street will be sent abroad.

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More Wall Streeters head abroad

Jim Kim — Tue, 12 Aug 2008 08:11:42 -0400

Is it time to volunteer to go overseas? It might not be a bad idea, though the thought of uprooting your family for the Middle East or Latin America might not strike everyone as a great adventure. The New York Times reports that banks are moving more employees abroad, including top executives, in a bid to build-up overseas units quickly and retain key managers. Headhunters also report a lot more placements abroad. In the first half of 2007, only 10 of Morgan Stanley's managing directors were transferred to other countries. This year, that number has risen to 33. Stephen Roach relocated to Hong Kong to become chairman of the bank's Asia operations. Owen Thomas moved there to be chief executive. Five executives were sent to Dubai from London. The Times notes that some relocations in general can be "less than voluntary." Do you have an language skills?

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Auction rates securities settlements in perspective

Jim Kim — Fri, 08 Aug 2008 07:37:27 -0400

The news that Citigroup and Merrill Lynch will reimburse individual investors burned by auction rate securities to the tune of $17 billion is certainly eye-catching. The New York Times notes that the Citigroup action (Merrill's offer was not part of the settlement) represents "among the largest amounts ever recovered by investors from a single company as a result of regulatory action." Morgan Stanley got in on the act, agreeing to reimburse some small towns in MA. These actions set a precedent of sorts for other banks--Lehman Brothers, JPMorgan Chase, Wachovia, Bank of America and others--that are in similar straights due to their marketing of ARSs. All of this will affect the bottom line, and hopefully it will end the matter. What remains to be seen is whether Citigroup's $100 million penalty reflects a premium over other penalties given the alleged destruction of relevant evidence.

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Richard Bove is in his prime

Jim Kim — Sun, 03 Aug 2008 22:30:03 -0400

We've noted that analyst Richard Bove is a "reporters' best friend" sort of analyst. At 67, he's been covering banks for 26 years and he's definitely in his prime--he's gotten better with age. "Bove has gained a certain reputation as one of the few bank analysts to predict the blow-up in the housing market and subsequent problems at many banks. He is also one of the few whose advice, if heeded, would have made money for investors over the past year." Few analysts these days are publicizing "who's next" lists of failing banks. He's tough on executives--unafraid of CEOs at Morgan Stanley, Citigroup and others. At Ladenburg Thalmann, he's got what he thinks is a fine perch from which to criticize. He's negative still on investment banks but thinks some commercial banks have turned the corner.

For more:
- here's the Times profile

Now hear this: Morgan Stanley is hiring

Jim Kim — Thu, 31 Jul 2008 13:09:14 -0400

People tend to assume that getting hired on Wall Street right now is all but impossible--with all the layoffs. For John Mack, CEO of Morgan Stanley, that spells opportunity. The Financial Times reports Morgan Stanley is looking to hire top executives and upgrade its status in key markets, like derivatives, risk management and prop trading. In particular, it would like to add expertise in the Middle East and Asia. It has already snapped up a few former Bear Stearns employees. Morgan Stanley has saved $1 billion by cutting about 10 percent of its employees, mainly in investment banking, fixed income and research. Those savings are being redeployed.

For more:
- here's the FT article

Ex-Citi hedge fund manager blames firm

Jim Kim — Wed, 30 Jul 2008 09:41:03 -0400

John Pickett, who ran a Citigroup hedge fund from 1999 until his resignation in December, has filed a sealed arbitration-like complaint in London. In it, he has some choice accusations against his former employer, notes FINalternatives. Pickett claims Citi's John Havens, who now runs Citi's alternative investment units, overruled him when he attempted to back out of a bid for $730 million in leveraged loans last summer. Pickett's move reflected what he saw at Morgan Stanley and the other banks changed the terms. But after Morgan Stanley complained, Havens ordered Pickett not to sue the banks. A settlement was reached that cost the hedge fund dearly, and helped secure a large loss for the year, according to Pickett (who says the firm put its own interests ahead of customers). Citi says the complaint is without merit. It halted redemptions at the fund in question in February.

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- here's the FINalternatives article

Boutiques, top firms co-exist in restructuring business

Jim Kim — Fri, 25 Jul 2008 08:00:03 -0400

TheDeal.com notes that investment bankers were once precluded by law from representing a client company in bankruptcy court. That left much of the restructuring business to boutiques, who continue to dominate. In 2005, the law restricting bankers was amended by the Bankruptcy Reform Act. Are top Wall Street firms now ready to assert themselves in what looks to be a lucrative market? It's fair to say they all have staffed up. Morgan Stanley, Goldman Sachs and Lehman Brothers are among those who positioned themselves a bit better. But TheDeal.com notes that there's a high level of cooperation between boutiques and banks. The smaller advisory firms turn to the big banks for financing and other services. And the law still prevents a firm from being both a bankruptcy adviser and an underwriter. Most banks are really interested in the capital-raising angle.

For more:
- here's the article from TheDeal.com

Is Wall Street credibility an issue?

Jim Kim — Mon, 21 Jul 2008 13:28:33 -0400

Breakingviews notes that a lot of CEOs should "now help themselves to generous portions of the sanguine words they have uttered over the last few months." Lehman Brothers' Dick Fuld, JPMorgan Chase's Jamie Dimon, Goldman Sachs' Lloyd Blankfein and Morgan Stanley's John Mack all publicly suggested that the worst was over. But that hasn't turned out to be the case. Perhaps the optimistic words were justified at the moment, but as of now, such pronouncements have been proved premature. Here's another example. In late 2007, Bank of America CEO Ken Lewis uttered a memorable phrase: "I've had all the fun I can stand in investment banking." He wanted to scale back dramatically. As of late, however, the bank has been staffing up, as investment banking revenues have soared to near-record levels. Circumstances can change, people understand that. They've also learned to appropriately discount CEO pronouncements. Trust, but verify.

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- here's the Breakingviews article

Related Article:
Can Wall Street firms be believed?

Trading gets harder for top firms

Jim Kim — Tue, 15 Jul 2008 13:36:07 -0400

Lehman Brothers lost money trading on 40 days in the first half of this year, up from just three days last year, reports Financial News Online. Morgan Stanley lost money on 24 days versus just one a year ago. Goldman Sachs lost money on 37 days compared with 11 a year ago. It seems that prop trading is that much more precarious in these turbulent times. The biggest daily loss at Lehman was $312 million, compared with $25 million last year. Morgan has also had some high profile miscues, notably a rogue trader in London. The stakes are high no doubt. You would think that, like hedge funds, trading would be able to benefit form rising and declining markets. We've long been conditioned to believe that volatility is the friend of trading outfits, but that really doesn't seem to be the case. The credit crisis is turning a lot of thinking on its head.

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- here's the article