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Once again, the analysts are trailing the market. Merrill Lynch has upgraded Morgan Stanley to “buy” from neutral:
13 Oct 2008 14:12 EDT *DJ Morgan Stanley Raised To Buy From Neutral By Merrill Lynch
It’s just a matter of time before the others now follow. Meanwhile, we hear that Trump Entertainment has been downgraded. That’s probably another of those “just a matter of time” scenarios too.
We knew that Morgan Stanley was in talks with a number of banks to discuss possible mergers. But until late tonight we only had one name: Wachovia. Now CNBC has dug up another name: Chinese bank Citic.
Morgan Stanley is in talks to possibly be acquired by Chinese bank Citic, sources in the U.S. and China have told CNBC.
No deal is certain at this time, however, and sources said that none was likely to be finalized Wednesday.
Morgan Stanley and Goldman Sachs are linking their lending to hedge funds to the market’s assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices.
The report of both changes ran in the Financial Times. The changes would limit the ability of hedge funds to borrow from either firm if borrowing by Morgan and Goldman became too expensive, indicating a lack of market confidence in the financial health of the firms.
In one sense, this seems a practical response to volatility in the credit markets, reducing exposure to hedge fund leverage as credit markets for financial companies become unsettled. It does, however, create a self-serving dynamic for the investment banks. If hedge funds taking the view that the companies have become unstable push up CDS or bond yields on the firms, they may find themselves unable to borrow from the firms. In other words, it gives the hedge funds an incentive not to bet against Goldman and Morgan.
The FT says the plans to link hedge fund leverage to the broader credit markets has been in the works for sometime. “These arrangements for determining the size of lending commitments to hedge fund clients were being put in place before the collapse of Bear Stearns,” Henny Sender writes. “But implementation has gathered pace as investment banks seek ways to guard against the sudden loss of confidence – and resulting withdrawal of market funding – that crippled Bear.”
MS and Goldman change approach to lending [Financial Times]
Remember when we asked for the identity of the Morgan Stanley trader accused of mismarking his book to the tune of $120 million? Morgan Stanley, which has been investigating the situation since last month, declined to name the trader, saying it is not yet clear whether the mismark was an error or fraud.
But London’s newspapers have been more forthcoming. The Evening Standard identifies the trader as a certain Matthew Piper, who is said to be in his late thirties.
Morgan Stanley Suspends Trader After $120m Gaff [HereIsTheCity]
Morgan Stanley announced that it suspended a senior fixed income trader on its London trading floor after discovering he had marked up positions on his books by $120 million. Morgan Stanley has told the Financial Services Authority and begun an internal investigation. They say that while the $120 million is not material to their financial results, they disclosed the misdeed and investigation to send a clear message of “zero tolerance” for such shenanigans.
All well and good we suppose. But they didn’t go far enough. We want to know who this mismarking trader was. Send your guesses to tips@dealbreaker.com or leave a comment below.
Morgan Stanley suspends London dealer [Guardian]
In an era when we’ve all come to expect surprise results from investment banks, Morgan Stanley handed over some completely unsurprising results this morning. The earnings per share, at 95 cents, were just about in line with expectations. (Although what that means in when the highest analyst prediction was twice the lowest is unclear.) John Mack, Chairman and CEO, issued a statement telling us that things that you know were down and the things most competitors are getting right were done right at Morgan Stanley also. In short, fixed income and asset management sucked. Prime brokerage and equity derivatives did well. Also, they have a “world-class international franchise.” So everything will be alright then.
CEO John Mack has reportedly been given the boot.
Morgan Stanley is supposedly laying off “double digit %” next week in New York. I know this sounds bad, but we’re just going to assume that the reduction in headcount is part of CEO John Mack’s plan to bring back taxi reimbursement for rides prior to 10 pm.
The $13.25 billion acquisition of Electronic Data Systems by Hewlett-Packard—the ninth largest tech deal ever, according to DealLogic—has moved the M&A league table standings, DealJournal Heidi Moore reports. Before the deal was announced, Goldman Sachs and Morgan Stanley led this year’s ranking from advising technology companies on mergers. But neither bank has a role in the H-P deal, pushing them down in the rankings
“Goldman ranked first with $14 billion of announced deals to its credit this year, and Morgan Stanley ranked second with $11 billion according to investment-banking research provider Dealogic,” Moore writes. “But now, Goldman is in third place, displaced by Lehman Brothers and J.P. Morgan. Lehman has jumped from fifth to first place with $17 billion of deals to its credit, while J.P. Morgan — which, just yesterday, languished in seventh place with only about $2.2 billion of tech deals to its credit — has vaulted to second place in the rankings from seventh place. Morgan Stanley has fallen to No. 5.”
Citigroup and Evercore Partners advised Electronic Data on the deal. J.P. Morgan Chase and Lehman Brothers advised Hewlett-Packard.
Hewlett-Packard: The Advisers [Deal Journal]
Morgan Stanley is now (like, right this second, according to Alley Insider) laying off an additional one thousand employees, on top of the thousand from a few weeks ago. The Journal says the cuts will affect mortgage employees, though we hear “no one in Fixed Income is safe.” And yet, Two and a Half Men is being allowed to come back with new episodes, as early as mid-March. Doesn’t seem fair. Got any more info? About anything? Anything at all? We’re listening.
Morgan Stanley to Lay Off 1,000 Mortgage Employees [WSJ]
Morgan Stanley Prepares To Lay Off 1,000 Workers [WSJ]
