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Morgan Stanley Questioned by SEC Over Timing of Revel Loss

Nov. 16 (Bloomberg) -- Morgan Stanley, the sixth-largest U.S. bank by assets, was asked by the U.S. Securities and Exchange Commission to explain why it waited until this year to recognize losses on an unfinished New Jersey casino.

The bank, which has held a majority stake in the project since 2007, was asked to explain how it classified the holding and how a “downturn” in Atlantic City affected attempts to sell it, according to letters between the SEC and the New York-based bank released today. Morgan Stanley said it thought a strategy for the holding would help it recover the carrying value and that it booked a charge after deciding to sell.

This year, Morgan Stanley has written down about 97 percent of the $1.2 billion investment in Revel Entertainment LLC, a project that originally called for two towers with 3,800 hotel rooms and 150,000 square feet of gambling space. The bank took a $932 million loss on the stake in the first quarter, and another $229 million in the third quarter. It has about $40 million of value left, Chief Financial Officer Ruth Porat said last month.

Morgan Stanley said that before its decision to sell the stake, it had consolidated Revel and compared the book value of the investment with undiscounted cash flows to check whether a charge was warranted. The bank said it recognized there were “impairment indicators” before the first quarter of 2010.

The SEC’s letters were sent by the agency’s corporation finance unit, which reviews disclosures to ensure investors are kept informed during stock offerings and in financial reports. If the division suspects misconduct, it can refer matters to the agency’s enforcement arm for further investigation.

Following Morgan Stanley’s response, the SEC said in a letter that it had no further comments. It didn’t indicate it may take any further action. Mark Lake, a spokesman for Morgan Stanley, and John Heine, an SEC spokesman, declined to comment.

Planned as the biggest casino resort in Atlantic City, Revel is partly built on 20 acres at the north end of the beachfront boardwalk. Morgan Stanley owned more than 90 percent of the project after contributing the land as an equity investment in 2007 and financing part of the construction.

To contact the reporter on this story: Michael J. Moore in New York at mmoore55@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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