Morgan Stanley revealed Tuesday that it’s making a bundle selling risky loans that allow its clients to use stocks and bonds as collateral. The Wall Street goliath saw its best ever quarter for so-called securities-based loans, which have raised concerns because they can slam investors if there’s a sharp market downturn. The financial powerhouse headed by James Gorman said Tuesday its overall profits rose 12 percent during the third quarter to $1.78 billion, boosted by its business in managing money for its ultra-wealthy clients. But the bank also reported $40.1 million in income from securities-based loans, up 18 percent from last year, the most ever — and just six months after the bank paid a $1 million fine for securities-based loan sales contests that The Post first exposed last year. The loans are more dangerous for investors in part because they have very few restrictions — borrowers don’t even have to chip away at paying them back like they would a credit cards. But banks make easy money and brokers get a cut, too, unlike other kinds of credit. In a Tuesday conference call with analysts, Gorman sounded defensive about the sales of the loans — and suggested the bank was only going to sell more. “The lending side provides a lot of stickiness with relationships,” Gorman said. “People want access to credit. They have large illiquid positions or concentrated stock in businesses they’ve founded and they don’t necessarily want to liquidate that. And we’re in a position where we’re dealing with a lot of very, very wealthy people.” The Post reported in April that the loans are scaring some bankers, because they can hold severe risks for individual investors. The loans have only gotten more popular as stock indexes reach new all-time highs on a seemingly daily basis. But more on Wall Street — including higher-ups at Morgan Stanley — are warning that a market selloff could be looming. “Near term, a correction is looking more likely,” the bank’s chief US equity strategist and chief investment officer, Michael J. Wilson, wrote in a Tuesday note. Overall, Morgan grew its wealth management business by 9 percent compared to last year, to $4.2 billion. That business has been growing, even as Washington has moved to crack down on Wall Street selling riskier products that do more to pad a broker’s bottom line than a clients’. The bank now manages more than $1 trillion in accounts that pay management fees, about 44 percent of the bank’s total assets — a record that was spurred by Obama-era rules from the Department of Labor. Though those rules may not survive the Trump administration, Morgan Stanley has decided to keep them, in part because they make easy, steady income. Previously, brokers got paid by the trade, which led to less consistent profits. http://nypost.com/2017/10/17/morgan-stanley-is-cashing-in-on-risky-stock-backed-loans/
This is a truly shocking revelation! Next week's NYPost will reveal how MS is cashing in on risky, home-backed loans...stay tuned.
This reporting is shoddy...usually when you report on something particularly risky, you describe why it's risky. Nevermind this was .04 billion of their 1.78 billion in profits. Presumably being high risk they're high return too...meaning they're even less a percentage of assets than the 2% of profits they make up. ...which is a really fancy way of asking, why is this news?