Morgan Stanley

Morgan Stanley Buying A Bit Of the Hog

bartonbiggs.jpgIncreasingly, it seems that the way up on Wall Street is reached via an exit ramp. There was a time when leaving Wall Street’s big firms to launch a small investment fund was viewed as a way of getting off the fast track. It may have been bold or it may have been a semi-retirement but it was seldom seen as a way of climbing upwards. Last year, however, things began to shift as Wall Street firm began buying hedge funds and hiring their managers to take over their own alternative management division. Suddenly the path to the top of the firm—or at least, the path to serious riches—led through places with names like Old Lane.
The latest version of this story comes from in the form of news that Morgan Stanley is in talks to buy a minority stake in Traxis Partners LLC, a $1.5 billion hedge fund run by the investment bank’s former chief strategist, Barton Biggs. The outspoken Biggs is a frequent guest on CNBC and the author of tell-all Hedgehogging. During his thirty years at Morgan Stanley, he became a well-known figure to many on Wall Street.
He comes from Wall Street blood. His father was chief investment officer of Bank of New York. After Yale, where he studied under the poet and novelist Robert Penn Warren, Biggs taught English at a prep school and wrote some short fiction. In 1961, he joined EF Hutton. He joined Morgan Stanley in 1973. He left the firm in 2003 to start Traxis.
He was well-liked by brokers and traders at Morgan Stanley.
“Barton Biggs was a joy to listen to every morning,” one former broker tells us. “I felt like I got smarter just listening to him. He was one of those guys who seemed to have it all together. He had an amazing grasp of everything that was happening in the markets. He was an optimist, even in the dark, cold winter of 2001.”
Traxis reportedly faired decently in August, losing just 2.5 percent for the month. It’s up about 9 percent this year, according to the Financial Times.
Morgan in talks over Traxis stake [Financial Times]

Morgan Stanley Takes A Hit

Argh, matey. Yesterday it looked as if Wall Street might have found a way to dodge serious losses from this summer’s credit crunch. Lehman, which was widely viewed as one of the most vulnerable Wall Street firms (along with Bear Stearns), beat expectations with its earnings. The brokerages and banks soared after the Fed announced rate cuts.
This morning looks a little different. Morgan Stanley “missed” this morning, with earnings that fell short of analysts’ estimates. The short fall seems directly tied to the credit crunch, with the biggest losses coming in loans for leveraged buyouts and a decline in fixed-income trading revenue.
Third-quarter profit from continuing operations declined 7 percent to $1.47 billion, or $1.38 a share, from $1.59 billion, or $1.50, a year earlier, the New York-based firm said today in a statement. The people who sometimes seem as if they are paid to get earnings wrong had estimated that Morgan Stanley would report $1.55-a-share.
So how did Morgan Stanley get hit worse than expected and Lehman less? Some believe the difference may be a matter of accounting. With banks marking down assets due to the crunch there is some room for judgment calls.
“It looks to me that Morgan Stanley took a conservative, worst-case approach to the losses,” one veteran Wall Street investor told DealBreaker this morning. “Lehman may simply more aggressive with its accounting, and may plan to roll the losses out over several quarters. Or it may believe it can overcome the losses as the credit markets ease.”

  • 26 Jul 2007 at 11:00 AM
  • Banks

The Latest Round in the London vs. NYC Fight

London comes out on top again, as Morgan Stanely is shipping Walid Chammah, global head of M&A, across the pond. Morgan Stanley is the most relocation-happy out of the bulge brackets, now that London houses the bank’s I-banking chief, securities division COO and global head of capital markets.
Some oft-stated reasons for the push, from breakingviews:

The reasons are manifold. First and foremost is London’s geography. By straddling the time zones of Asia and North America, a globally-focused executive can wake up speaking with colleagues in Tokyo and pass the Jag ride home directing charges in New York. London is also more conveniently situated than New York for courting executives in Russia, China, the Middle East and India – the four horsemen of future industry growth.

The trend isn’t just affecting top positions, and doing its best to scrape the bottom of the barrel. More and more banker and trader underlings are getting shipped from NYC to the UK, or taking exploratory mini-work-“vacations,” to work a week or two in London. Some even say that the work environment in London as a result is becoming just as life-crushing, if not more so, than Wall Street. If anyone has any stories of the difference in work environment from any of these trips, comment or drop a line to *tips at dealbreaker dot com*.
Follow his Walid [breakingviews]

  • 25 Jul 2007 at 10:14 AM
  • Banks

South Korea Throws Banks a Bone

Finally, the National Pension Service (NPS) of South Korea is letting some of the bulge bracket banks into its $220 billion coffers. Morgan Stanley and Credit Suisse are the first to get a piece of the pie, although we hope they aren’t that hungry. South Korea is condescending to let Morgan Stanley and Credit Suisse manage $500 million and $450 million respectively, for a whopping(ly disappointing) three years.
“Oh. Um…great. Well, thanks, I guess,” said Morgan Stanley Investment Management’s Asia Head, Blair Pickerell, while David Blumer, Credit Suisse’s chief executive officer for asset management, reenacted the title track from Oliver! the musical (“Please, Sir, I want some more.”).
Taking a note from its batty Northern neighbor, the NPS deals exclusively in five-year plans, from MarketWatch:

NPS plans to double the proportion of its offshore investment to 20% by 2012, when it expects to have assets worth KRW400 trillion, it said recently when it unveiled its 2007-2012 investment strategy. Global asset managers will manage all of its offshore investments during the period, but NPS plans to gradually increase its direct offshore investment after that. It also targets to further increase its international investment allocation to 50% sometime around 2040, when NPS’s assets are forecast to reach KRW2,600 trillion.

NPS does plan on throwing scraps to some other major banks to manage funds in the future, although it’s several five-year plans away.
Morgan Stanley, Credit Suisse to manage Korean national pension assets [MarketWatch via DealBook]

  • 23 Jul 2007 at 1:17 PM
  • Banks

Morgan Stanley – Behold Our Grasp Of Basic Addition

math_chalkboard.jpg Morgan Stanley has taken an internal study over the cost of debt and done some basic math so you don’t have to. The study figures that stock market corrections occur about six months after the cost of debt begins to increase. Since spreads began to widen in February, Morgan Stanley thinks that (let’s see, take the 2, add the 6, carry the 1, integrate by parts… and yup, 8) August could see a 14% market correction, or 2,000 points off the Dow.
Historically, equity markets take a while to pick up on the bad market omens created by higher rates and wider spreads. The eerie similarities between now and the last bubble burst, from the Telegraph:

The current pattern looks similar to the relentless rise in spreads from February to September 2000 when the stock markets finally tipped over… the iTraxx Crossover index measuring risk appetite for high-yield bonds touched bottom at around 170 in February. It has since jumped to 320 – mostly this month – implying a 150 basis point rise in the cost of raising capital.

Morgan Stanley’s internal Cassandras think the correction could begin with the unwinding of the yen carry trade in Japan, significantly impacting global liquidity. The Bank of Japan is expected to raise rates in August.
Morgan Stanley Predicts Correction [DealBook]
Morgan Stanley predicting correction [Telegraph]

No. 2 Bank Hit With No. 2 Lawsuit

no2pencil.jpgWe kid…we kid Morgan Stanley—no one thinks they’re the No. 2 BB, or even the No. 3 or 4 for that matter. But they were in fact served papers last week by Lisa LaMacchia, an MS employee who claims that her boss, Richard Dorfman, offered her some unwanted touching and then tried to “sexually assault her with a pencil.”
The suit seeks unspecified money damages from Morgan Stanley and Dorfman, who allegedly once “stole a pair of underwear from [LaMacchia’s] gym bag” and is described as a “hostile and aggressive” boss (and “11, maybe 12 years old,” one intuits). The defendant claims that HR told her “suck it up,” as they presumably had bigger problems on their hands, like the protractor incident on the sixth floor.
Morgan Stanley Hit By ‘Sex-Pencil’ Suit [NYP via CWS]

  • 09 Jul 2007 at 2:47 PM
  • CEOs

When Executives Hit the Links: Does Golf Affect Stock Prices?

When the indoor putting green became a necessary accoutrement to the chief executive office, everyone assumed that the “golf or work?” conundrum had been answered with a resounding “both.” But, as the Times reported recently, there is no tenable substitute for well-manicured sand traps and tree-lined fairways, even when your hedge funds are collapsing.
Yesterday, the Bespoke Investment Group blog posted the recent scores and handicaps of five CEOs: Stanley O’Neal of Merrill Lynch, Richard Fuld of Lehman Brothers, James Cayne of Bear Stearns, John Mack of Morgan Stanley and Lloyd Blankfein of Goldman Sachs. The Dealbreaker question of the day: is there any correlation between a CEO’s golf game and that other hobby, making money? Here are the results:

CEOs Ranked by Handicap

1. Stanley O’Neal (9.9)
2. Richard Fuld (10.3)
3. James Cayne (15.9)
4. John Mack (17.0)
5. Lloyd Blankfein (32.1)
CEOs Ranked by Percent Change in Stock Price This Golf Season
1. Lloyd Blankfein (+6.9%)
2. Richard Fuld (+3.14%)
3. Stanley O’Neal (-1.3%)
4. James Cayne (-3.49%)
5. John Mack (-9.86%)
Lloyd Blankfein, by far the worst golfer of the bunch who, on a really good day shoots under 110, pushed Goldman stock up nearly 7% since April. This could mean several things: while other executives hit the links, Blankfein is holed up in the office; his short game is only strong in the financial sector; or he is confused about how golf is scored. You decide.

Inopportune Time To Be A Master Of The Universe

kravisforbes.thumbnail.jpgAlert the National Guard: Goldman has now been left out as a major underwriting playa in two—count ‘em, two—IPOs. First there was the Blackstone slap in the face, and now KKR is jumping on the “Don’t touch me there, Goldman” bandwagon. The same banks who lead the B-stone deal, Citigroup and Morgan Stanley, will be underwriting KKR’s as well.
What’s with 1-2 punch? When it happened the first time, many believed that GS and JP were working on another P.E. IPO, there was a non-compete and so on and so forth. Others wondered if Goldman’s own “aggressive pursuit of private-equity deals alienated Steve Schwarzman,” failing to take into consideration that a 5’6” tall man probably has pretty thick skin. But Blackstone’s in the past—what’s the deal with the second snub?
As Reuters points out, JPMorgan doesn’t have a private equity arm capable of competing with KKR, but Henry Kravis may “have beef with the bank,” re: First Data Corp.

Reuters reported in April that Henry Kravis and crew were fuming at the way JPMorgan handled its proposed takeover of First Data Corp. Long story short, JPMorgan owns a majority stake in a First Data joint venture. KKR tried to reassure JPMorgan that the JV was not under threat, but JPMorgan pushed back, offering to buy out First Data’s 49 percent stake in the venture or dissolve the partnership altogether, sources told Reuters. That didn’t sit well with Kravis, sources say.

So that’s JP Morgan, okay, but the lack of Goldman is still coming as a shock to those who believe Goldman Sachs rules the world and all of its inhabitants (really, though, Goldman does have the ability to make it rain). So what’s up there? Some theories:
• Goldman’s private equity arm competes directly with KKR for deals.
• As noted by the ‘Bookies, in March, Lloyd Blankfein said, “It’s impossible for us to be in every piece of business,” which is kind of like hearing your deity admit to being human and will thusly be chalked up to Blankfein being drunk, and struck from the record.
• Goldman has different looting and plundering strategies from those of KKR
• Goldman needs a nap
• There can only be one bald supermogul per IPO
• Goldman is advising Apollo, Citadel
• Goldman is the midst of a herpes outbreak
• Kravis just doesn’t think Goldman’s all that good at the private equity business
• Goldman has told KKR in the past that it would underwrite its IPO—when small mouth bass rule the world
Goldman, JPMorgan out in the cold for second private equity IPO [Reuters]
Underwriting Henry: Who’s In and Who’s Out [DealBook]
Goldman’s Hedge Fund Alumni Network [Deal Journal]