Morgan Stanley Trading Units Had Losses on 64 Days in ’11

Morgan Stanley Trading Units Had Net Losses 64 Days in 2011
Pedestrians walk past Morgan Stanley headquarters in New York. Photographer: Scott Eells/Bloomberg

Morgan Stanley, owner of the world’s biggest brokerage, lost money in its trading businesses on 64 days last year, up from 38 days in 2010 and the most since 2008.

The firm’s traders lost money on 22 days in the fourth quarter, down from 31 in the third quarter, the New York-based company said yesterday in a filing with the U.S. Securities and Exchange Commission. The bank made more than $100 million on 26 days in 2011.

Morgan Stanley had the only growth in 2011 trading revenue among the nine largest U.S. and European investment banks, excluding accounting gains, as it posted a 7 percent increase to $12.3 billion. Total trading revenue at those firms fell 16 percent as activity dropped amid Europe’s sovereign-debt crisis.

Citigroup Inc., the third-biggest U.S. bank by assets, said in a filing Feb. 24 that it recorded trading losses on 54 days in 2011, including one day when losses exceeded $180 million. Bank of America Corp., the second-largest U.S. lender, said in a Feb. 23 filing that it had losses on 14 percent of trading days, including 12 in which losses exceeded $25 million.

Morgan Stanley said that as of Dec. 31 counterparties may call $4.74 billion in additional collateral or termination payments if its credit rating is cut three levels, and it would have to post $1.78 billion in collateral to certain exchanges and clearinghouses. The combined figures for one- and two-level downgrades were $1.04 billion and $5.17 billion, respectively, according to the filing.

Credit Ratings

The firm previously had only disclosed requirements for one- and two-level downgrades. Morgan Stanley’s credit ratings may be cut by as many as three levels as part of a review of 17 banks and securities firms with global capital-markets operations, Moody’s Investors Service said earlier this month.

Morgan Stanley also said it had about $700 million in losses on fair-value loans and lending commitments. It raised the amount of loans and commitments that it accounted for as “held for investment,” or HFI, to $9.7 billion in the fourth quarter from $800 million a year earlier, the company said last month. That accounting would allow it to avoid booking losses on some lending that drops in value.

A lawsuit over mortgage-backed securities issued by Countrywide Financial Corp. includes allegations that offering documents contained false statements, and Morgan Stanley underwrote about $6.3 billion of the offerings, according to yesterday’s filing. Defendants in the case have moved to stay the case pending resolution of a separate lawsuit brought by the same plaintiffs, Morgan Stanley said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE