Morgan Stanley (MS)

[MWM]

Morgan Stanley Seen as Risky as Italian Banks

Morgan Stanley (MS), which owns the world’s largest retail brokerage, is being priced in the credit- default swaps market as less creditworthy than most U.S., U.K. and French banks and as risky as Italy’s biggest lenders.

The cost of buying the swaps, or CDS, which offer protection against a default of New York-based Morgan Stanley’s debt for five years, has surged to 456 basis points, or $456,000, for every $10 million of debt insured, from 305 basis points on Sept. 15, according to prices provided by London-based CMA. Italy’s Intesa Sanpaolo SpA (ISP) has CDS trading at 405 basis points, and UniCredit SpA (UCG) at 424, the data show. A basis point is one-hundredth of a percent.

“The CDS spreads are making investors and creditors nervous” about Morgan Stanley, said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates the company’s stock “outperform,” in an e-mail.

The price of Morgan Stanley credit-default swaps has continued to climb even though the firm’s shares have risen this week. The stock jumped 93 cents, or 6.6 percent, to $15.09 in New York Stock Exchange composite trading yesterday, the fourth- biggest gainer in the 81-member S&P 500 Financials Index. Shares are down 45 percent since the start of the year.
Implied Risk

Moody’s Analytics, an arm of Moody’s Investors Service that’s separate from the company’s credit-rating business, said in a report yesterday that Morgan Stanley’s CDS prices imply that investors see the bank’s credit rating as having declined to Ba2 from Ba1 in the last month. The company is actually rated six grades higher at A2 by Moody’s Investors Service.

By comparison, Bank of America Corp. (BAC) and France’s Societe Generale (GLE) SA, which have CDS trading at 403 basis points and 320 basis points respectively, have prices that imply a rating of Ba1, higher than the implied rating on Morgan Stanley, said Allerton Smith, a banking-risk analyst at Moody’s Analytics in New York.

Mark Lake, a spokesman for Morgan Stanley in New York, declined to comment.

Morgan Stanley was the biggest recipient of emergency loans from the Federal Reserve during the financial crisis and also benefited from capital provided by Tokyo-based Mitsubishi UFJ Financial Group Inc., now the biggest shareholder, and the U.S. Treasury, which it repaid with interest.
2008 Peak

While the price of Morgan Stanley’s credit-default swaps is at the highest level since March 2009, it’s nowhere near the peak reached in 2008. On Oct. 10 of that year, the annual price for five-year protection rose to the equivalent of 1,300 basis points, according to data provided by CMA, a unit of CME Group Inc. that compiles prices quoted by dealers in the privately negotiated market.

The credit-default swaps market can be thinly traded, and the recent jump in prices may reflect no more than a single big counterparty seeking to hedge contracts, said Hintz, a former Morgan Stanley treasurer. Morgan Stanley, one of the biggest traders of CDS among U.S. banks, doesn’t make a market in its own swaps, according to Smith of Moody’s Analytics.

The CDS market has features “that may not exist in other markets like the bond market or the equities market,” Smith said in a telephone interview. Having fewer participants trading in the Morgan Stanley name could result in a “disproportionate spread movement,” he said.

The daily average trading volume in Morgan Stanley shares over the last three months is 27 million shares, according to data compiled by Bloomberg. By contrast, a three-month study released this week by the Federal Reserve Bank of New York found that most single-name CDS trade less than once a day, while the most active trade more than 20 times per day.
Swaps Volume

Trading in Morgan Stanley credit-default swaps has risen recently to 257 contracts last week, compared with 187 for Goldman Sachs Group Inc. (GS), according to the Depository Trust & Clearing Corp. That compares with a weekly average of 73 trades in Morgan Stanley and 91 in Goldman Sachs in the six months that ended on Aug. 26, DTCC data show.

There was a net $4.6 billion of protection bought and sold on Morgan Stanley debt as of Sept. 23, according to DTCC. Even with the higher trading volume, investor skittishness in the face of Europe’s sovereign debt crisis may be leaving few market participants willing to sell CDS protection to meet the demand for hedges, said Hintz.

“With the EU teetering, few other firms are going to jump in and write CDS on a global capital markets player like MS,” Hintz said in his e-mail, referring to the European Union and to Morgan Stanley’s stock-market ticker symbol.
Trading Decline

The rise in Morgan Stanley’s CDS prices may also relate to an expected decline in third-quarter trading revenue or to the company’s exposure to French banks, Smith said.

Ruth Porat, the bank’s chief financial officer, said at an investor conference on Sept. 13 that the fixed-income trading environment in the third-quarter was worse than 2010’s fourth quarter, when Morgan Stanley posted its lowest debt-trading revenue since the 2008 crisis. The company, led by Chief Executive Officer James Gorman, 53, reported second-quarter revenue from both investment banking and fixed-income trading that beat rival Goldman Sachs for the first time on record.

Morgan Stanley had $39 billion of cross-border exposure to French banks at the end of December before accounting for offsetting hedges and collateral, according to an annual filing with the U.S. Securities Exchange Commission. Cross-border outstandings include cash deposits, receivables, loans and securities, as well as short-term collateralized loans of securities or cash known as repurchase agreements or reverse repurchase agreements.
‘Galloping Wider’

While Morgan Stanley hasn’t updated those figures, Hintz estimated in a Sept. 23 note to investors that the bank’s total risk to France and French lenders is less than $2 billion when collateral and hedges are included.

As of June 30, Morgan Stanley had about $5 billion of funded exposure to Greece, Ireland, Italy, Portugal and Spain, which was reduced to about $2 billion when offsetting hedges were accounted for, according to a regulatory filing. The company also had about $2 billion in overnight deposits in banks in those countries and about $1.5 billion of unfunded loans to companies in those countries, the filing shows.

“Their spreads just are galloping wider,” Smith said. “Is it rational that Morgan Stanley CDS spreads would be wider than French bank CDS spreads if the concern is exposure to French banks? I don’t think that makes perfect sense.”
Bond Yield Climbs

Goldman Sachs, which like Morgan Stanley converted from a securities firm to a bank in 2008, had $38.5 billion of gross cross-border exposure to French banks as of June 30, according to a regulatory filing. The firm’s five-year credit-default swaps are trading at 308 basis points, according to CMA.

Morgan Stanley’s 10-year debt has also shown signs that investors are growing concerned. The yield on the company’s $1.5 billion of 5.5 percent senior unsecured notes that comes due in July 2021 has climbed to 6.3 percent from 5.46 percent on Sept. 15, according to prices reported by Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

That’s still lower than the 6.91 percent yield on 4.125 percent bonds issued by Intesa Sanpaolo that come due more than a year earlier, in April 2020, according to Bloomberg data.

Morgan Stanley’s reliance on the debt markets, instead of depositors, to provide funding for its assets may be one cause of concern, some analysts said. Morgan Stanley and Goldman Sachs, which were the second-biggest and biggest U.S. securities firms before converting to banks, both got less than 10 percent of their funding from depositors as of June 30, according to company filings with the SEC.

By contrast, Bank of America and JPMorgan Chase & Co. (JPM), the two largest U.S. banks by assets, funded more than half of their balance sheets with retail deposits at the end of June, filings show.

“The market is just very sensitive to anybody considered to be wholesale funded,” John Guarnera, a financial analyst at Societe Generale in New York, said in a Sept. 23 telephone interview. “If you’re a bank, you can fall back on the fact that you have a strong retail deposit base. Morgan Stanley has deposits, but not like you’d see out of a BofA or a JPMorgan.”

[TSRAYS]

bought some PUTS this morning myself. markets are only temporary IMO

[RonnieD]

traded some calls on the bump, currently
no position, but this all comes down to who
you trust.. can you trust recent company statements
that they not only have small exposure but are also
adequately hedged ?
i think the larger issue, short term bumps or dives
aside (based on Europe news) is the upcoming quarter
which expected to be very weak for both Goldman
and MS. -- and the likelihood of a stale environment
for all of 2012. I just think the upside is sub-20
for quite some time.

[MWM]

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb?

Submitted by Tyler Durden on 09/24/2011 06:23 -0400

The latest quarterly report from the Office Of the Currency Comptroller http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq211.pdf

is out and as usual it presents in a crisp, clear and very much glaring format the fact that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9% of all derivative exposure (HSBC replaced Wells as the Top 5th bank, which at $3.9 trillion in derivative exposure is a distant place from #4 Goldman with $47.7 trillion). The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively. And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.



At this point the economist PhD readers will scream: "this is total BS - after all you have bilateral netting which eliminates net bank exposure almost entirely." True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small... Right?



..Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

The point of this detour being that if any of these four banks fails, the repercussions would be disastrous. And no, Frank Dodd's bank "resolution" provision would do absolutely nothing to prevent an epic systemic collapse.

...

Lastly, and tangentially on a topic that recently has gotten much prominent attention in the media, we present the exposure by product for the biggest commercial banks. Of particular note is that while virtually every single bank has a preponderance of its derivative exposure in the form of plain vanilla IR swaps (on average accounting for more than 80% of total), Morgan Stanley, and specifically its Utah-based commercial bank Morgan Stanley Bank NA, has almost exclusively all of its exposure tied in with the far riskier FX contracts, or 98.3% of the total $1.793 trillion. For a bank with no deposit buffer, and which has massive exposure to European banks regardless of how hard management and various other banks scramble to defend Morgan Stanley, the fact that it has such an abnormal amount of exposure (but, but, it is "bilaterally netted" we can just hear Dick Bove screaming on Monday) to the ridiculously volatile FX space should perhaps raise some further eyebrows...

[RonnieD]

quite hopefully the bottom was in today.

[gmoney123]

What do you ppl think this will bottom out at... Im looking to buy in soon

[Hostile Takeover]

Thanks to MS there is a little light today.

[gmoney123]

Whens a good time to get in here for long term this has done nothing but drop in 3 years

[RonnieD]

trendline intact. they can't have my shares
unless this line breaks, that's the name of
the game.

[MWM]

MS was actually not downgraded but was mentioned as a possible downgrade target...

Morgan Stanley, Goldman Sachs and J.P. Morgan have also been mentioned as possible downgrade targets, so this may not be the end of the dropping shoes.

Bank of America, Wells Fargo: The Downgrade Shoe Finally Drops.
September 21, 2011, 12:31 PM ET.
By Mark Gongloff

APFor a long, long time now, investors have been waiting for the day when credit-rating agencies cut their ratings on the big banks due to the possibility that they might get less support from the US government. That day has come.

Moody’s has downgraded Bank of America’s long-term credit rating two notches to “Baa1? from “A2? and its short-term rating to P-2 from P-1.

Baa1 is equivalent to BBB in other rating scales, which is just about the average credit rating for corporate bonds.

And this is not an unexpected development. Still, it’s not welcome and could lead to higher borrowing costs. Bank of America stock is down about 3% at last check to $6.69. Update: It’s now down 4.5% at $6.58.

This could have other Too Big to Fail Banks looking over their shoulders, too. They’ve also been warned in the past of the potential for a downgrade. The XLF is down 2%.

It could have been worse for Bank of America. The agencies warned more than a year ago that Bank of America enjoyed 3 to 5 notches of extra credit-rating support based on the implied government safety net. S&P later gave some of the banks a little more standalone credit.

The fact that Moody’s only cut BofA by two notches suggests they’re still getting some support from Uncle Sam. It also means the other bank downgrades, if and when they come, could be even gentler than this one.

Update: Not shockingly, Bank of America disagrees with the downgrade:

Moody’s decision to downgrade our credit rating is based on factors external to Bank of America: Their conclusion that the Dodd-Frank legislation will make the U.S. government less likely to support financial institutions in a crisis, and a possible further deterioration of the economy. In fact, Moody’s explicitly stated that the downgrades do not reflect a weakening of the intrinsic credit quality of Bank of America.

In terms of factors within the control of Bank of America, Moody’s states clearly that we have made significant progress in improving our capital and liquidity positions, shedding legacy and noncore assets, and managing risk. With regard to the mortgage business, Moody’s concludes that we have ample resources to absorb the additional losses we are likely to experience on these exposures.

While we disagree with their conclusions and we believe our ratings should be higher, to minimize any potential impact of this decision on our business, we have been managing our liquidity carefully and we have prefunded our planned borrowing needs for the year.

Update 2: Sure enough, Wells Fargo has been downgraded, too, by one notch to A2 from A1. That’s the equivalent of an A rating by S&P, so it’s still a pretty high rating. Wells stock is down less than 1%.

Update 3: Citigroup’s long-term rating has been upheld at A1. Citigroup’s short-term rating has been cut to P-2 from P-1. Citi shares are little changed. Remember when Citi was the sick man of the TBTF set?

Update 4: Citi responds, too:

Although we are pleased that Moody’s affirmed both the long-term and short-term ratings of Citibank, N.A. and the long-term rating of Citigroup, we completely disagree with Moody’s change to Citigroup’s short-term rating. It does not accurately reflect the significant progress Citi has made since Moody’s last rated Citi more than two-and-a-half years ago. Regardless, we believe that less than 1% of Citi’s funding will be affected by the Moody’s decision and the downgrade will not affect the short-term and long-term funding of our bank vehicles.

At the end of the second quarter, Citi had $462 billion in cash and available for sale securities, representing approximately 25% of our balance sheet. We have ample liquidity based on a variety of stress tests and liquidity models, including the Basel III Liquidity Coverage Ratio, which we are already in compliance with, even though those requirements are not scheduled to come into effect until 2015.

With a Tier 1 Common ratio of 11.6% and a Tier 1 Capital ratio of 13.6% as of the end of the second quarter, Citi is one of the best capitalized financial institutions in the world. We have made enormous progress refocusing our business strategy to take advantage of our global network and reducing Citi Holdings assets by more than $500 billion from peak levels. With a strong capital base, robust structural liquidity and ample reserves, Citi is well-positioned for sustained future earnings.

Morgan Stanley, Goldman Sachs and J.P. Morgan have also been mentioned as possible downgrade targets, so this may not be the end of the dropping shoes.

[MWM]

I thought that is what they said on CNBC but I think your right, MS was just put on watch for a possible downgrade, my mistake...

[10nisman]

And they downgraded MS just now too, not a bad call this monring on my part... Maybe some new the downgrade was coming...

MS was downgraded by Moody's? Have a link? I only see BAC, WFC and C.

[MWM]

And they downgraded MS just now too, not a bad call this monring on my part...

Maybe some new the downgrade was coming...

[10nisman]

Well clearly you are much more advanced than me, why don't you share some great tips since you are so far ahead of the game...

You said you knew and to trust you so I just wanted to give you the heads up when the downtrend started. BTW, financials are selling off today on Moody's downgrade of BAC.

[MWM]

MS just got downgraded...

[MWM]

Well clearly you are much more advanced than me, why don't you share some great tips since you are so far ahead of the game...

[RonnieD]

didn't even know you posted here

bottom trendline held
machines buying hard.

leadership confrontation overblown.

[10nisman]

Like I said, I have been watching and I know. Noticed it 3 weeks ago. Someone is unloading, just sit back and watch...

They've been unloading it since March (along with its friends) - what took you so long to notice it?

[MWM]

Like I said, I have been watching and I know. Noticed it 3 weeks ago. Someone is unloading, just sit back and watch...

[10nisman]

Nope, on several days it has lead the % gains down compared to it's friends. Trust me, I've been watching. You can't tell just by lookng at a chart... trading much worse to it's direct competitor GS too...

Haha. So you cannot tell by looking at the charts yet you post charts? That's genius. MS is more volatile than its larger friends however the return performance has been largely the same. Look at the performance of MS, GS and JEF over the past month. MS also announced leadership changes last week which could have led to some its recent volatility.

http://finance.yahoo.com/echarts?s=MS+Interactive#chart12:symbol=ms;range=1m;compare=gs+jef;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

[MWM]

Nope, on several days it has lead the % gains down compared to it's friends. Trust me, I've been watching. You can't tell just by lookng at a chart...

trading much worse to it's direct competitor GS too...

[10nisman]

Thanks but MS has been lagging for weeks now, today is one of many...

MS has largely been trading with its friends, IMO.

http://finance.yahoo.com/echarts?s=MS+Interactive#chart9:symbol=ms;range=3m;compare=gs+c+jef+stt+bac;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

[MWM]

Thanks but MS has been lagging for weeks now, today is one of many...

[10nisman]

MS is likely trading lower based on Jefferies Group (JEF) earnings.

http://www.reuters.com/article/2011/09/20/jefferies-idUSL3E7KJ2JD20110920?feedType=RSS&feedName=bondsNews&rpc=43

[MWM]

MS I bought some puts, something is not right...

[edawgy]

Mr Finkin, IMO should be in a cell along with several others. The punishment that is passed down to these guys is a joke.

With all of the corruption that is being exposed lately with all of the big banks there should be a dtc lock put on them all.

Have the DOJ go through there records for the past few years and start locking them up, IMO, of course.

[Hostile Takeover]

When searching for buys it is best to hit them when their down...

[Hostile Takeover]

This sector is down, but not out.

[Hostile Takeover]

However, I shall watch for entry point soon.

[Hostile Takeover]

I have never had a position here.

[Hostile Takeover]

Morgan Stanley and Goldman Sachs slashed their forecasts for global economic growth, citing weaker- than-expected growth in the second quarter of this year, along with slower global trade growth and additional austerity measures announced in several countries.

[Jackoftrades]

Long term (5-12 months it loooks excellent.

[MWM]

MS back under $17, not looking so hot...

[MWM]

Something is very wrong with MS here, I have grabbed a ton of puts here this week...

Proceed with caution imo...

[timvic]

MS-BULLISH TO WATCH NOW

MS is trading in the range of $20.18 - $23.78 in the past 30 days.
MS bounced back from a recent support.
Commodity Channel Index (CCI) is bullish for MS.
Money Flow Index (MFI) is bullish and moving up for MS.
MS formed a bullish Price & Exponential Moving Average Crossover signal.
MS formed a bullish Price & Simple Moving Average Crossover signal.
The 10-day simple moving average is bearish and moving down for MS.
Average volume increase over 5% for MS.

[mantzes]

on my radar

[fourkids_9pets]

may not be a good time to be *either* ..

May 12, 2010 1:54 AM
WSJ: Morgan Stanley Investigated by Feds

http://www.cbsnews.com/8301-503983_162-20004756-503983.html

--
4kids
all jmo

[DewDiligence]

It’s a Good Time Not To Be Goldman

http://online.wsj.com/article/SB20001424052748703465204575208451223092816.html

›Morgan Stanley Finally Creeping Up on Rival Goldman

APRIL 27, 2010
By DAVID REILLY

It's good not to be Goldman Sachs Group. That should be the new refrain of Morgan Stanley shareholders.

Fraud allegations levied by the Securities and Exchange Commission and the prospect of tougher financial-overhaul legislation have knocked more than $30 off Goldman's share price, or about 17%, in less than two weeks. During that same period, which saw strong earnings reports from both firms, Morgan's stock has gained about 3%.

Things aren't likely to get better for Goldman on Tuesday: Chief Executive Lloyd Blankfein and other executives are due to be raked over the coals at a congressional hearing that will look into the trade at the heart of the SEC's claims.

By dragging down the share price, Goldman's travails have led Morgan's stock to trade close to, or at a premium to, Goldman's, based on some measures such as price to tangible book value.

That is quite the reversal of fortune. Over the past five years, Goldman's stock has risen 50%, while Morgan's has fallen about 40%. And Goldman typically has traded at a valuation comfortably above Morgan's due to its consistent delivery of knockout earnings growth and superior returns on equity.

There is an element of vindication for Morgan shareholders. In the immediate wake of the crisis, Goldman's return to business as usual meant profits sizzled, while Morgan's fizzled. The latter, after its near-death experience, decided to reduce its reliance on trading and beef up more stable areas such as wealth management.

Even now, with Morgan's trading engine firing on more cylinders, the firm still lags behind Goldman. Morgan's first-quarter return on equity of about 13%, excluding some items, compared with a 20% return posted by Goldman.

The hope: That Morgan ends up with a more-balanced business than Goldman if financial-overhaul legislation proves tougher than once expected, especially in regard to trading. Morgan's also-ran status makes life more comfortable from a regulatory and political standpoint as Goldman remains in the spotlight.

To really keep pace, though, Morgan will have to show that its retooled trading operations can go toe to toe with Goldman and that it can deliver on plans to widen margins in its expanded wealth-management business.

That leaves Morgan with significant execution risk as it pursues its new strategy. Goldman, while still running the risks inherent in huge trading operations, is more at the mercy of regulators. Both firms may feel the sting of any changes to the over-the-counter derivatives markets, given that they are among the top five players.

It is still too early to say if the Morgan tortoise can beat the Goldman hare, but with Washington in the front row, the race has at least gotten more interesting.‹

[goforthebet]

Mack Steps Down as Morgan Stanley’s Chief Executive

By Christine Harper

Sept. 11 (Bloomberg) -- John Mack, who struggled to return Morgan Stanley to profitability after surviving the worst financial crisis since the Great Depression, will turn over his chief executive officer title to Co-President James Gorman.

Mack, 64, will step down at the end of the year and remain chairman of the New York-based bank for at least two years, he said in an interview yesterday. Gorman, 51, will become CEO and Walid Chammah, 55, co-president with Gorman since 2007, will relinquish that role and remain chairman of Morgan Stanley International in London. The changes take effect Jan. 1.

In more than four years leading the firm, Mack sought to improve profits and repair divisions that appeared under former CEO Philip Purcell. Mack’s strategy of boosting trading risks backfired in 2007 when bad bets led to the firm’s first quarterly loss. While the company survived the financial crisis that devastated some rivals, Morgan Stanley has lost money since the third quarter of 2008 and reined in trading even as Goldman Sachs Group Inc. earnings hit an all-time high.

“Mack has been beaten up a little for not taking as much risk in the capital markets as Goldman,” said Matt McCormick, a banking industry analyst at Bahl & Gaynor Inc. in Cincinnati, which manages $2.3 billion. “He was given a tough job, I think he handled it above average and history will judge him a solid leader on Wall Street.”

Morgan Stanley slashed the assets on its balance sheet by almost a third to $677 billion at the end of June from $987 billion at the end of August to cut its reliance on leverage, or borrowed money. The firm’s average value-at-risk, a measure of how much the company estimates it might lose in a day’s trading, was $154 million in the second quarter compared with $245 million at Goldman Sachs.

Missed Opportunities

Led by Chief Executive Officer Lloyd Blankfein, Goldman Sachs set a new Wall Street record for fixed-income and equities trading revenue during the second quarter. Colm Kelleher, Morgan Stanley’s chief financial officer, said in July that the firm’s fixed-income team “didn’t pursue the opportunities we could have” in the second quarter.

Gorman, born in Australia, was recruited by Mack in August 2005, less than two months after Mack became CEO, to run the retail brokerage division. Gorman previously worked at Merrill Lynch & Co., now part of Bank of America Corp., which is Morgan Stanley’s biggest competitor in providing financial advice to individual investors.

Brokerage Business

Earlier this year, Gorman increased Morgan Stanley’s investment in its brokerage business when he formed a joint venture with Citigroup Inc.’s Smith Barney. Morgan Stanley paid $2.75 billion in cash to Citigroup to gain a 51 percent stake in the venture, dubbed Morgan Stanley Smith Barney, which had 18,444 financial advisers as of June 30.

Gorman said in an interview that he doesn’t expect to change Morgan Stanley’s strategy.

“We’re pretty clear about what kind of company we’re going to be,” Gorman said yesterday. “A lot of what has to happen now is to really focus on day-to-day execution.”

Morgan Stanley in July reported its third consecutive quarterly loss, weighed down by accounting charges and costs as well as fixed-income trading and asset-management revenue that Mack said was unsatisfactory.

The company’s stock, at $28.64 in New York Stock Exchange trading yesterday, is down 34 percent from its closing level on June 30, 2005, the day Mack was named chairman and CEO. Goldman Sachs shares are up 71 percent and JPMorgan Chase & Co. shares climbed 22 percent over the same period. Morgan Stanley’s shares slipped to $28.39 as of 11:15 a.m. in Frankfurt trading today.

‘Bigger-than-life’

“Mack is a bigger-than-life individual” who has had both negative and positive effects on the firm, said Brad Hintz, an analyst at Sanford C. Bernstein & Co. and a former treasurer at Morgan Stanley. “Mack’s leadership stabilized the firm after Purcell left and he pulled the firm back from failure in 2008.”

Mack’s decision to step down was unrelated to the firm’s recent performance or the stress of last year’s financial crisis, Mack said. He said he told the board 18 months ago that he would like to hand off the CEO title after he turns 65 in November.

“I’ll stay as chairman at least for two years working with James, working with clients,” Mack said. “I’m not leaving this firm. This firm is part of my DNA.”

Mack, the youngest of six boys born to Lebanese immigrants, entered the securities industry by accident, according to a biography posted on the Horatio Alger Association’s Web site. In his junior year at Duke University, a cracked neck vertebra ended the football scholarship that had paid his way, forcing him to take a clerking job at a North Carolina brokerage.

Bond Salesman

He graduated from Duke in 1968 and joined Morgan Stanley as a bond salesman four years later. He spent most of his career at the firm, working his way up in fixed-income sales and trading before becoming president under CEO Richard Fisher in 1993. He encouraged Fisher to sell the firm to Dean Witter Discover & Co., the brokerage firm led by Purcell, only to leave in 2001 after Purcell refused to relinquish power.

He helped run Zurich-based Credit Suisse Group AG for three years, leaving after a clash with the board. When Morgan Stanley shareholders and employees helped to oust Purcell in 2005, fed up with a lackluster share price and an autocratic management style, they turned to Mack to restore the firm’s former glory in investment banking and trading.

Like Purcell, Gorman worked at consulting firm McKinsey & Co. before running a retail-oriented financial brokerage and has never worked as a trader or banker. That’s led some analysts to question whether he’ll have the same difficulty winning over the institutional-securities side of the business as Purcell did.

‘Lost Decade’

“I am concerned that the Morgan Stanley board of directors is placing an admittedly capable executive with a largely retail brokerage operating background in charge of a global capital markets firm with the second-largest investment banking franchise in the world,” Bernstein’s Hintz said. “It was a similar decision in 1997 that led to the lost decade of Morgan Stanley.”

Mack dismissed the concerns, saying that Gorman is much more accessible to bankers and willing to make client calls than Purcell was. Gorman said that a majority of his recent client meetings have been with customers of the institutional- securities side of the business.

Mack said he considers his own greatest accomplishment to be leading the firm through last year’s crisis, which wiped out Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch. One week after Lehman’s Sept. 15 bankruptcy, Morgan Stanley and Goldman Sachs converted to bank holding companies, ending their history as independent securities firms to win the backing of the Federal Reserve.

Japan Investment

Morgan Stanley shares fell as low as $9.68 on Oct. 10 before the firm won a $9 billion investment from Japan’s Mitsubishi UFJ Financial Group Inc. and $10 billion from the U.S. government on Oct. 13. Mack has since repaid the Treasury and the stock has rebounded. Spreads on the company’s bonds, which widened during the financial crisis, have since narrowed to bring them in line with peers.

“You’ve got to give him some credit for surviving,” said Kenneth Crawford, a senior money manager at Argent Capital Management LLC in St. Louis, which oversees $700 million. “The good thing is there’s an MS ticker on my screen that changes price each day, and there are a fair number of his peers that aren’t on my screen anymore.”

To contact the reporter on this story: Christine Harper in New York at [e-mail].

Last Updated: September 11, 2009 05:21 EDT

[JustCallMeSassy]

MORGAN STANLEY(NYSE: MS)
After Hours: 29.53 0.16 (0.54%) 7:57PM EThelp
Last Trade: 29.69
Trade Time: Aug 21
Change: 0.33 (1.12%)
Prev Close: 29.36
Open: 29.86
Bid: N/A
Ask: N/A
1y Target Est: 32.50
Day's Range: 29.00 - 29.95
52wk Range: 6.71 - 44.50
Volume: 24,293,853
Avg Vol (3m): 24,151,000
Market Cap: 40.35B
P/E (ttm): 20.49
EPS (ttm): 1.45
Div & Yield: 0.20 (0.70%)

[zigzagman]

Another Great! read...Thanks! for sharing that DD ;^))

[DewDiligence]

More on the same subject:

#msg-37134560

[romuluss]

Small Cap Investor and everybody:

Forget possible dilution, balance sheet,and all other distraction. MS is and will move higher regardless of all the nay sayers. Financial stocks are heavily shorted and underowned
pure and simple and funds are looking for entry point. Some
people are trying to mudy the water and make you sell, don't fall for it!! One look at the charts says it all. We have just
closed above the 200 day MA. FOR THE FIRST TIME in a while.
Right now the probability is 80-20 in your favor, take from an
old pro trader with lots of gray hair, MS is going higher pure
and simple. Enjoy the ride!!!!

[RULiquid]

MS is planning on selling shares as well >>>
Goldman Sachs mulls stock sale to repay TARP money: report
Friday April 10, 2009, 6:44 am EDT
Buzz up! Print (Reuters) - Goldman Sachs Group Inc is considering making a multibillion dollar share offering to investors as part of its efforts to repay a $10 billion government loan, the Wall Street Journal reported citing people familiar with the matter.


Reuters - Traders work in the Goldman Sachs booth on the floor of the New York Stock Exchange, September 30, ...
The announcement could be made as early as next week and though Goldman executives haven't determined the exact size of the offering, it is expected to be at least several billion dollars, the people told the Journal.

A final decision hasn't been taken and will be based partly on market conditions, the Journal reported.

Goldman Sachs, which is due to report its quarterly earnings on Tuesday, is one of several recipients of the U.S. government's Troubled Asset Relief Program investment and plans to repay the money as soon as possible.

Goldman Sachs could not be reached immediately for comments.

(Reporting by Sweta Singh in Bangalore; Editing by Vinu Pilakkott)

[small cap investor]

Thank you for this observation, zigzagman, so it seems that whatever report I would make about the company, it wouldn't be accurate. That's not good, well at least I know what is the reason for that. So it's better to wait till the new results are announced and then try to discover what is going on in the company. Maybe you know another example about which I would be able to write something better than about MS?

[zigzagman]

You won't be able to properly analyze...

The balance sheet of any of the big banks using that latest balance sheet information that DD just gave you in that link...

That's because the FASB is going to announce changes to the Mark-to-Market accounting system after their board meeting on April 2nd that will be retroactive...

That means that much of the losses they are showing on their books now won't be there anymore, and all the banks balance sheets will improve dramatically...

So if they were having a negative 1st Quarter before, they won't be showing it anymore because of the changes in the M2M accounting rules...JMO

[zigzagman]

You won't be able to properly analyze...

The balance sheet of any of the big banks using that latest balance sheet information that DD just gave you in that link...

That's because the FASB is going to announce changes to the Mark-to-Market a

[small cap investor]

Thanks for the link.
Can you tell me whether the company is able to pay all the debts? Has this situation improved during the total year, or everything has been going worse? How do you count it? How to find that out?
I'd like to find this information in order to compare the results of the whole year.

[DewDiligence]

This is the latest balance sheet:
http://sec.gov/Archives/edgar/data/895421/000119312509013429/d10k.htm#toc90217_32

What are your specific questions?

[small cap investor]

Hey, I am totally disappointed with lookin for help from people. Maybe that's a better place than other forums.

I'm lookin for people to talk about balance sheet of company.
I've some problems at this moment with the numbers of BS. Can anyone help me analyze company's performance? I need to make a report for my boss about Morgan Stanley but I don't have a clue where to get this analysis from, so I thought maybe u guys could help me and show some things about the balance of MS?

U would help me so much.

Dissapointed smallcapinvestor