May 7, 2009 – 4:38 pm

Morgan Stanley, incorporated in 1981, is a global financial services firm that, through its subsidiaries and affiliates, provides its products and services to a group of clients and customers, including corporations, governments, financial institutions and individuals. On October 14, 2008, Mitsubishi Fuji Financial Group, Inc. acquired a 21% stake in Morgan Stanley. In March 2009, the Company disposed its entire interest of 9.507% in the United Industrial Corporation Limited.

The Company operates in three segments: Institutional Securities, Global Wealth Management Group and Asset Management.

Breakdown of the three business segments:

Institutional Securities

Institutional Securities includes capital raising; financial advisory services, including advice on mergers and acquisitions, restructurings, real estate and project finance; corporate lending; sales, trading, financing and market-making activities in equity and fixed income securities and related products, including foreign exchange and commodities; benchmark indices and risk management analytics, and investment activities.

Global Wealth Management Group

Global Wealth Management Group provides brokerage and investment advisory services covering various investment alternatives; financial and wealth planning services; annuity and other insurance products; credit and other lending products; cash management services; retirement services, and trust and fiduciary services.

Asset Management

Asset Management provides global asset management products and services in equity, fixed income, alternative investments, which includes hedge funds and funds of funds, and merchant banking, which includes real estate, private equity and infrastructure, to institutional and retail clients through proprietary and third-party distribution channels. Asset Management also engages in investment activities.

2009-09-10- John Mack one Foot Out The Door:

Even keeping his $40 million bonus for 2006 alone and the big bang pop of histories largest credit bubble and Morgan Stanley can only get one greedy fat foot John Mack’s out the door.

You can now be sure that the Obama administration mini bubble is fully inflated and set to pop. Morgan Stanley Chief Executive Ass Wipe, John Mack,  is stepping down, signaling the end of the ponzi crash dive.

Oh my kingdom for a banana peel.

2009-05-07-Stress Release:

Morgan Stanley reportedly passed the FED’s stress test to see if it was adequately capitalized, but regulators said it needed $1.8 billion to be adequately capitalized. You have to wonder what kind of test it was when all 19 insolvent banks passed it, some even needing more capital.



For Morgan Stanley the writedowns march on as the bank took $2 billion of writedowns on financial securities and for an improvement in the firm’s commercial paper. The bank didn’t raise any new capital as far as we could find, undoubtedly waiting for the Stress Test results to do that. But held commercial paper of $1.0 billion and long-term debt of $23.7 billion, outstanding, both under the TLGP, as of March 31, 2009. The company lowered it’s level 3 to $67.4 billion, as of March 31, 2009.

Generally the bank prospered from one time trading gains, but still was unable to lower it’s pain total.

Morgan Stanley’s Tally:

  1. Tally for Write-Downs/Charge-Offs:  $7.88 + $2.0B = $9.88B
  2. Tally for cash raised Non TARP: $9.0B
  3. Tally for cash raised TARP: $10 B
  4. Tally for cash raised TGLP: $24.7B
  5. Current level of Level III assets at $67.4
  6. Current level of loan loss reserves at $??? M

Misery Index $121.0B


Morgan Stanley dropped a bomb on it’s fourth quarter earnings report confessing that without $19B cash raising effort it would be well on it’s way to the pink sheets.

Morgan Stanley’s Tally:

  1. Tally for Write-Downs/Charge-Offs: $5.58 B + $2.3B = $7.88
  2. Tally for cash raised Non TARP: $9.0B
  3. Tally for cash raised TARP: $10 B
  4. Tally for cash raised TGLP: $6.0B
  5. Current level of Level III assets at $78.4 B <–use the Q3 # until the 10 K>
  6. SFAS 159: $2B <– From a gain from the falling value of of it’s own debt
  7. Current level of loan loss reserves at $??? M

Misery Index $113.28B

2008-12-04 Morgan Raises $475M:

WOW grabbing $5.25B under the TLGP was so easy the first time Morgan Stanley decided to get another half a billion, the way you take a late night snack from your refrigerator.

Morgan Stanley on Thursday sold another $475 million of notes backed by the Federal Deposit Insurance Corp, according to IFR.

The bank sold $475 million of 2.25-year floating-rate notes, after increasing the offer from an original $350 million, said IFR, a Thomson Reuters service.

The notes were priced at par for a yield spread of 3-month London interbank offered rate plus 57.5 basis points. The bank acted as sole lead manager on the deal.

Last week, Morgan Stanley sold $5.25 billion of debt in a three-part deal backed by the FDIC. The sales are part of the government’s Temporary Liquidity Guarantee Program, which offers guarantees on debt issued by financial institutions with a maturity of no longer than three years.

That’s a big fat $6.0B snack from your refrigerator in eight easy days.

2008-11-26 Morgan Raises $5.25B via TLGP:

Cash raising from the government has become Morgan Stanleys most profitable business line these days and the bank is getting good at it and good at hiding it from public view. What appears to be an ordinary issue of $5.25B in commercial paper,

“The bank will offer $2.25 billion of 2-year fixed-rate notes, with price guidance indicating a range of midswaps plus 80 basis points, said IFR.

It will offer a second tranche of $2.5 billion of 3-year fixed-rate notes, expected to be priced at midswaps plus 85 basis points. The bank will offer a third tranche of $500 million 3-year floating-rate notes at the 3-month London Interbank Offer Rate plus 85 basis points.”

reveals itself under x-ray to be a bailout in drag.

The TLGP, which we’re pronouncing as Tillgup, is a huge government bailout of our banking industry, albeit one that has gotten very little attention. Under the Tillgup, the Federal Deposit Insurance Corp will guarantee new debt issued by a bank, which allows them to raise money at something close to a risk-free rate.

How big will the Tillgup be? No one knows

It’s the “no one knows” part thats has us affraid, very affraid!

2008-10-28 Morgan Raises $10B:

Morgan Stanley took$10B of your money under the TARP today. It was one among the nine big banks to divy up $250B.

Morgan Stanley was among the eight large U.S. banks to receive the Treasury Department’s initial round of capital investments — money described by Treasury officials not as a bailout, but rather as funds to help bolster “healthy” banks in tough times.

If Morgan Stanley is considered healty after a $10B transfussion you have to wonder what would be considered a sick bank.

2008-10-13 Morgan Raises $9B:

You can tack on $9B in cash raising to Morgan’s fourth quarter. We will not be surprised to see that tally move even further up from here. <>

2008-09-26 Hedge Funds Run:

Morgan Stanley had barely finished becoming a retail bank when it experienced a run by depositors, big-moneyed hedge fund depositors that is.  It was quite a punch in the nose for a bank just coming out of the gate.

2008-09-23 Resurrection:

Morgan Stanley reported is fiscal third quarter, settled with officials over auction rate securties and then quietly imploded as an investment bank. After years of burning the leverage candle at both ends, the white hot profits of the investment doom have been pushed to the scrap heap of history and the new king of the mountain is deposit-banking. It is in the image of this new king that Morgan Stanely has been resurrected.

2008-09-18 Earnings-Q3:

Morgan Stanley reported Wednesday and finally put its Q3 2008 10-Q online and there we found in the table on page 5 provisions for loan (consumer) loss of $472 million. Also from the New York Times we can get that the Level 3 assets grew from $69.2 billion last quarter to $78.4 billion at the end of Q3. Also the conditions of the auction rate securties settlement from page 113, state:

On August 13, 2008, the Company reached an agreement in principle with the Office of the New York State Attorney General and the Office of the Illinois Secretary of State, Securities Department (on behalf of a task force of other states under the auspices of the North American Securities Administrators Association) in connection with the proposed settlement of their investigations relating to the sale of auction rate securities (“ARS”). The Company agreed, among other things to: (1) repurchase at par illiquid ARS that were purchased by certain retail clients prior to February 13, 2008; (2) pay certain retail clients that sold ARS below par the difference between par and the price at which the clients sold the securities; (3) arbitrate, under special procedures, claims for consequential damages by certain retail clients; (4) refund refinancing fees to certain municipal issuers of ARS; and (5) pay a total penalty of $35 million. A separate investigation of these matters by the SEC remains ongoing.

That (1) is what will cost the bank $4.5 B.

  1. Tally for Write-Downs/Charge-Offs: $1.08 B
  2. TWrite-Downs/Charge-Offs for ARS: $4.5B
  3. Tally for cash raised: $0.0
  4. Current level of Level III assets at $78.4 B
  5. Current level of loan loss reserves at $472 M

Misery Index $84.462 B

2008-08-15 Morgan Stanley Settles:

Morgan Stanley will buy back $4.5B of its peddled junk and pay a fine of $35M for dumping without license. It’s the kind of thing that happens every day, and you don’t feel bad about it unless you get caught. Morgan Stanley feels bad.

Morgan Stanley agreed to buy back $4.5 billion of debt and pay a $35 million fine,…

Regulators say brokerages misled investors into believing that auction-rate debt, which has rates that reset in periodic auctions, was safe and the equivalent of cash. Much of the $330 billion market has been frozen since February, when brokerages abandoned their traditional role as buyers of last resort.

Our twin tallies for Pain and ARS-Buyback now stand at $19.5B and $4.5B.

2008-06-19Cut Down:

The sleight of hand continues by Morgan Stanley. The bank has confessed to just $1.7B in credit-related write-downs. Page 16 of the Q2, 2008 10-Q shows a nice little graph of level 3 assets declining as a percent of total assets, but of course total assets are in decline as well. On page 19 it is clear that the ratio has not changed very much at all. Never the less we take the Level III number to be $1.031 B as advertised. So far we have been unable to discover the loan loss provisions amount for the company. Maybe they think they don’t need any. We think otherwise.

Here’s the tally thus far:

  1. Tally for Write-Downs/Charge-Offs: $23 B
  2. Tally for cash raised: $0.0
  3. Current level of Level III assets at $1.031 B
  4. Current level of loan loss reserves at $??

Misery Index > $24.0 B

And while they continue to avoid any mention of their radioactive Level III assets, they have managed to spin their second quarter 2008 results into a profit, Morgan has a lot of practice at this deception, but now each rabbit pulled from the deception hat seems noticeably smaller. Me thinks they are running out of time, options and hats. <>

2008-06-02 – Cut Down:

Morgan Stanley, the second-biggest U.S. securities firm by market value, was cut to A+ from AA- by S&P today in a move that may foretell more serious write-downs and credit-related losses to come.

2008-05-22 Write Downs Count of a Different Sort:

We have been keeping a running tally of write-downs and other credit-related distress taken by the major banks since 2007. But here comes a write-down count of a different sort: how much in write-downs and credit losses firms have written off per wholesale banking employee.

Morgan Stanley – $12.6B, 38,050 employees, $331,143 per employee

2008-05-14 – Sisyphus and Leveraged Loans:

In the hey-day of the credit bubble and the carry trade, Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers raked in mountains of money making loans for leveraged buy outs. Banks make money by lending money so fewer loans usually translates to less profits. But in the topsy-turvy aftermath of the credit bubble, all loans are suspect and leveraged loans are among the most toxic, which is why the WSJ is reporting that banks are trying to rein in their balance sheets. But it is not always so easy–

Morgan Stanley, for instance, has grown its loan commitments by about 45% a year since 2001, and shaved only 9% off its loan book in the first quarter.

Morgan Stanley still has $16B exposed to high risk loans.

2008-05-08 – Sleight of Hand:

In a Ponzi finance global economy the accounting method is by sleight of hand. In the preceding link, Minyanville reports that Morgan Stanley has the “honor” of being in the top ten of financial companies with more level 3 assets than shareholder equity. In MS’s case, they come in second, with a ratio of 234.88%. Congratulations Morgan Stanley!


The financial media sycophants keep tripping over themselves to promulgate the notion that Morgan Stanley didn’t lose revenue — they rather “beat estimates.” Leading the Pravda pack are and Bloomberg:

Morgan Stanley Net Beats Estimates on Equity Trading

When they finally did get around to reporting some numbers it turns out that “better than expected” still includes billions in WRITE-DOWNS:

And the company mentions just in passing that it took hits from the Fed’s credit crack pipe:

Morgan Stanley said it borrowed from the Fed’s new lending facility for primary dealers, which allows firms that deal directly with the central bank to borrow funds at the so-called discount-window rate available to commercial banks.

“We have tested the window because we want to remove the stigma from the window,” Chief Financial Officer Colm Kelleher said in an interview. “It’s meant to be there for normal business. It’s not meant to be there as a last-recourse thing.”

Or maybe they “tested” the discount window because they’re effectively broke, like the rest of Wall Street?

So JPM’s tally just increased by $1.1B + 1.2B= $2.3 B.


Oppenheimer analyst Meredith Whitney estimates Morgan Stanley could take additional write-downs of as much as $20B due to leveraged loans that it used to back big buyouts in 2007.

We will also have to follow the company’s accounting with regard to financial accounting standard rule FAS 159 which could allow the bank to report the widening of the credit spreads in its own debt as income. I’m not making this up. Speaking of FAS 159, take a look for yourself:

While the rule is clearly a boon to investment banks, it’s problematic for investors already reeling from multi-billion write-downs […] on complex assets whose underlying values remain a mystery.

2008-01-30:From the structured investment vehicle (SIV) desk of our “off-balance-sheet-impact” department comes this bit about Morgan Stanley:

Morgan Stanley, the second-biggest U.S. securities firm, wrote down $169 million after helping its money funds by taking on bonds issued by structured investment vehicles.

Morgan Stanley bought $1.06 billion of SIV bonds, including $160 million since Dec. 1, the New York-based firm said in a filing yesterday with U.S. Securities and Exchange Commission.

Banks and money managers bailed out money funds that bought debt from SIVs after losses caused by the collapse of the U.S. subprime mortgage market threatened to push their value below 100 cents on the dollar, known as “breaking the buck.” SIVs, which use short-term borrowing to invest in higher-yielding securities, have cut their holdings by more than $100 billion from a peak of $400 billion last year, according to Moody’s Investors Service.

Morgan Stanley bought $900 million of SIV debt from money funds in the year ending Nov. 30, booking losses of $129 million on the notes, according to the filing. The firm wrote down $40 million on notes it bought since then.

Note that this appears to be booking losses on SIVs not owned by Morgan Stanley — in other words, they are eating the loss to protect their clients. That is probably a smart move.

This begets the question of who this SIV’s owners are – and who would not make good on the holdings. We don’t see any details to indicate that.

It looks like the above write-downs are in addition to any already reported in the bank’s main financial filings.

And of course, if the value of the assets falls further (or any more such funds remain to be rescued), these write-downs could increase. If anyone has more specific information, please let us know.


According to Morgan Stanley’s Q4/Annual report(for the quarter/year ending Nov. 2007) , the company wrote down $2.4B of subprime securities in the third quarter and $9.4B in the fourth. It also reported $1.7B in losses due to downgrades of bond guarantors, and $1.9B due to bond insurer ACA Capital in specific.

This brings the total losses to $13.7B for the year (barring retroactive revisions upward). That is about half of net revenue and more than five times Morgan’s $2.5B net income for the year. The company reports $3.6B remaining in net subprime CDO exposure, $2.7B in subprime RMBS, and $600M in direct subprime lending. Exposure to ACA Capital is reported at $700M and change. However, the company reports hedges of $5.1B which allegedly cancel much of this exposure, bringing it to $1.8B net, overall.

We have no figures on exposure to other sorts of questionable mortgage securities (such as Alt-A, seconds, Pay Options, etc.) at this time.

Below-AA credit derivatives exposure at the company is reportedly in the range of $18B (which would be about 58% of “tangible equity”).

Total derivatives exposure is to the tune of $40B.

Stay tuned.

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