Morgan Stanley Cutting Correlation Unit Added $50 Billion
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Morgan Stanley was shrinking its derivatives business to cut risk under new banking rules when three deals came along that it couldn’t resist.
The bank bought credit-correlation positions with a notional value of more than $50 billion over the past three years, including a portfolio sold by Credit Suisse Group AG in 2012, four people with knowledge of the transactions said. The trades helped boost Morgan Stanley’s fixed-income revenue, the lowest among the biggest Wall Street firms, at the same time they swelled the balance sheet with risky assets. Such large acquisitions have since been halted, two other people said.