While Morgan Stanley received a relatively clean bill of health from the government on Thursday, analysts at Egan-Jones, the credit rating agency, arenât convinced that the firm has enough capital to weather the economic storm. Egan-Jones contended in a note to its clients Friday afternoon that Morgan Stanley needs around $40 billion in new capital in order to stand on its two feet without the help of the government. The shockingly big number is in stark contrast to the governmentâs stress-test results released Thursday, which said the bank would need just $1.8 billion in additional capital. At issue is how much capital Morgan Stanley has in relation to its total assets. The larger the disparity between assets and capital, the more risk the firm is taking on. To decrease risk to satisfy investors, Morgan Stanley has been aggressively deleveraging its balance sheet for the past year by selling assets and raising new capital. Over the past year, the firm has nearly halved the amount of assets on its balance sheet, to $626 billion from about $1.1 trillion. While Egan-Jones acknowledges that Morgan Stanley has reduced the assets on its balance sheet, it is not convinced that the investment bank has transferred the economic risk of those assets to third parties. âThatâs a massive decline in its asset base at a time when it is very difficult to delver,â Sean Egan, one of the firmâs founding principals, told DealBook. He listed examples of how other firms â like Lehman Brothers and Merrill Lynch â were able to shove toxic assets out the door last year by self-financing the deals and even guaranteeing some of the losses. So while the assets were technically off the balance sheets, the firms still had an economic interest in those assets because they stood to lose money if the securities blew up. Mr. Egan added that he found it hard to believe how Morgan Stanley was able to effectively sell $600 billion in assets last year without posting far larger losses than it reported. That is why his firm believes the company must have transferred those assets to other vehicles in which Morgan Stanley still had an economic interest. Based on that assumption, he believes the firmâs asset base is still around $1 trillion. Morgan Stanley said it did not comment on analyst reports, but it emphasized that its asset base was $626 billion, not $1 trillion. Mr. Egan believes that Morgan Stanley needs to have 7 percent to 8 percent of real capital, which he defines as market capitalization, to its total assets, to be considered strong enough to sell debt to investors at reasonable levels. Based on that metric, Morgan Stanley would need to raise its market value to $70 billion to $80 billion from its current $33 billion. âYou can spend a lot of time making adjustments, but at the end of the day you are trying to provide comfort to the nerds of the world that assess credit quality, and a good measure is 7 to 8 percent,â Mr. Jones said, defending his analysis. âThat will enable Morgan Stanley to issue debt at a stand-alone price.â Morgan Stanley took steps on Friday to prove it is in sound financial health, issuing $4 billion in new equity and another $4 billion in new debt to bolster its capital base. Both offerings flew off the shelves. But Egan-Jones believes that the rate that Morgan Stanley is paying on the debt proves that the company canât stand on its own. The debt carried an interest rate of about 4 percent over Treasurys, and the ratings agency said that it would increase interest costs at Morgan Stanley by $240 million. Mr. Egan said that it would be difficult for the investment bank to make money at those rates. âMorgan Stanley is probably going to say we are stupid, that we donât know, that we donât understand enough to make the adjustments,â he said. âForget it. The reality is that they have to raise more capital to access the public markets at a reasonable rate.â http://dealbook.blogs.nytimes.com/2...anleys-health/?scp=2&sq=morgan stanley&st=cse Transfered the assets to other vehicles ? Maybe Special Purpose Vehicles, Special Investment Vehicles ? The kind of off balance sheet vehicles that brought Enron down and hum which other companies...? Can it be true ?
This is very interesting.... Ordinarily....This is called FRAUD.... .................................................. FRAUD charges are for those who cannot buy lobbyists and govt. officials.... .................................................. JUSTICE ? How about rampant....unchecked FRAUD....? Condoned by the SEC....and the employment revolving door....between govt. jobs and non-govt, jobs....ie the police "policing the police".... ...................................................... Hey the same goes for the "special trading units of the large firms".... They loan the money.....own the trading mechanics....and thus see a lot of the cards that they play against.... LEGAL of course.... ..................................................... This is why very low commissions and trading software are so important.....along with smaller than big institutional size....and proven logic in day trading is the only way to play the equity or bond markets.... Speed boats can outmaneuver the big ships....but cannot carry what they carry..... As for govt. participation....the best prospective revolving doors rolodex numbers can buy.... ................................................. Fool me once ....shame on me..... Twice....well who's fault is that..... ................................................. The bottom line ....is when the govt. companies make the rules....what does one do about it other than adapt to win.... Whatever the system is.... JUST KNOW WHAT IT IS.... ................................................... In short.....FUCK THEM..... Be satisfied by developing logic that will take THEIR money.... And "smile"....
The 'Stress Tests' were a giant, steaming, pile of shit of fraud on the taxpayer, and everyone with half a brain knows it.
Its yet one more company serving a free lunch. They do seller financing of toxic assets, keep the risk if the deal blowsup but somehow convience everybody there is never any risk
MUFG to invest $600 million in Morgan Stanley Mitsubishi UFJ Financial Group Inc said Monday that it will acquire $600 million Morgan Stanley common shares, bringing its stake in the U.S. investment bank to over 20%. The Japanese bank said it will pay $24 per share and buy 25 million shares on May 13. However, because Morgan Stanley will redeem around Y60 billion of nonconvertible preferred shares under the transaction, MUFG will not pay additional cash for the purchase. The move comes after Morgan Stanley said last week it would sell $2 billion in stock after the Federal Reserve told the bank it needed to add $1.8 billion in common equity.
http://seekingalpha.com/article/136716-a-bull-market-that-few-are-buying The best government and regulators money can buy.... Add the mix of the revolving door to a real non-govt. job....that the SEC in particular has mastered.... Then there you have it.... A recipe for certain economic disaster.... And a perfect example of corporate/govt. governance.... The two party lobbyist win by advertising dollars system must go....