|
Morgan Stanley was one of several banks that had exposure to
Archegos, which defaulted on margin calls late last month and
triggered a fire sale of stocks across Wall Street.
Morgan Stanley lost $644 million by selling stocks it held
related to Archegos' positions, and another $267 million trying
to "derisk" them, Morgan Stanley Chief Executive James Gorman
said on a call with analysts.
"I regard that decision as necessary and money well spent," he
said.
The bank did not disclose losses right away because they were
not deemed material in the context of its overall results, he
added.
Morgan Stanley is not alone in nursing losses as a prime broker
for Archegos. Switzerland's Credit Suisse Group AG and Japan's
Nomura Holdings Inc bore the brunt, having lost $4.7 billion and
$2 billion, respectively.
Goldman Sachs Group Inc, Deutsche Bank and Wells Fargo & Co also
handled Archegos positions but exited them without losses,
Reuters and other media outlets have reported.
Morgan Stanley did not realize that Archegos had similar,
concentrated positions at several banks across Wall Street,
Chief Financial Officer Jonathan Pruzan told Reuters. As such,
the collateral requirements it imposed were only reflecting
Archegos's particular risks at Morgan Stanley, not the risks
across the fund's broader portfolio.
Morgan Stanley has reviewed its prime brokerage business for
similar problems but not found any, Pruzan said. The bank is
looking more broadly at its method for stress testing, and will
recalibrate positions with clients as necessary.
"We are never happy when we take a loss," he said. "But the
event is over...and we will learn from the experience."
The Archegos saga is likely to have regulatory repercussions,
however, with a slew of U.S. watchdogs as well as the Senate
Banking Committee all probing the incident to better understand
why some banks were so exposed to a single client.
Gorman appeared exasperated at times during the call as he faced
repeated questions from analysts about Archegos, distracting
from the bank's otherwise stellar performance.
Morgan Stanley's shares were down 1%.
"It's not a financial event in the grand scheme of things, but
it will likely raise concerns," Oppenheimer analyst Chris
Kotowski wrote in a note to clients.
Although Morgan Stanley's Archegos loss dominated the discussion
on Friday, its first-quarter profit comfortably beat
expectations. Its report wrapped up a robust quarter for the
biggest U.S. banks, which benefited from reserve releases and
record capital markets activity.
A spike in trading, partly driven by a Reddit-fueled trading
frenzy in "meme" stocks like GameStop Corp, drove a 66% jump in
revenue at Morgan Stanley's institutional securities business.
Unlike rivals JPMorgan Chase & Co and Bank of America, Morgan
Stanley and Goldman Sachs lack big consumer lending units, which
has limited their exposure to loan problems during the pandemic
and allowed them to focus on investment banking and trading.
Morgan Stanley's profit rose to $3.98 billion, or $2.19 per
share, in the quarter ended March 31, from $1.59 billion, or
$1.01 per share, a year ago.
Analysts were looking for a profit of $1.70 per share, according
to IBES data from Refinitiv.
Net revenue jumped 61% to $15.72 billion.
Like bigger rival Goldman Sachs, Morgan Stanley benefited from
an unprecedented boom in dealmaking through special purpose
acquisition companies (SPACs).
Global investment banking fees hit an all-time record of $39.4
billion during the March quarter, according to data from
Refinitiv.
Morgan Stanley also generated handsome fees from a spate of
mergers and by underwriting numerous high-profile IPOs of
companies including Affirm Holdings and AppLovin Corp.
Its investment banking revenue more than doubled to $2.6
billion.
(Reporting by Elizabeth Dilts in New York, Additional reporting
by Ambar Warrick in Bengaluru and Matt Scuffham in New
YorkWriting by Anirban Sen and Michelle PriceEditing by
Saumyadeb Chakrabarty and Lauren Tara LaCapra)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
|
|
