Dear or dear. Our initial reaction here is to wonder whether Mack the Knife was tempted to turn his weapon on himself.
- An extra subprime writedown of $5.7bn taken this November - on top of $3.7bn reported for October - bringing the total Q4 subprime writedown alone to $9.4bn;
- Loss from continuing operations for the fourth quarter was $3.6bn, compared with income of $2bn for the same period last year;
- Net revenues were negative $450m, compared with $7.9bn for last year’s fourth quarter;
- China Investment Corporation welcomed as “long-term financial investor,” paying $5bn for equity units with mandatory conversion into a stake of up to 9.9 per cent;
- Conversion set for August 2010, up until which time the units will attract a coupon of 9 per cent;
- “CIC will be a passive financial investor. CIC will have no special rights of ownership and no role in the management of Morgan Stanley, including no right to designate a member of the Firm’s Board of Directors.”
- Extensive management reshuffle including appointing Walid Chammah and James Gorman as Co-Presidents, naming Michael Petrick as Global Head of Sales and Trading, making the risk management function report directly to CFO Colm Kelleher and centralising all proprietary trading;
- Remaining direct net US subprime exposure put at $1.8bn at end-November;
- On core capital - “While the Firm continues to maintain total capital levels which significantly exceed regulatory capital requirements, at quarter end because of the loss for the quarter and the increase in the capital assigned to the Institutional Securities segment, the Firm’s unallocated economic capital was a negative $4.1 billion.”
- But hey! there’s still a quarter dividend of $0.27 per share, payable end-January.
Declares John J Mack, chairman and ceo:
The writedown Morgan Stanley took this quarter is deeply disappointing - to me, to our colleagues, to our Board and to our shareholders. Ultimately, accountability for our results rests with me, and I believe in pay for performance, so I’ve told our compensation committee that I will not accept a bonus for 2007.
Across the Firm, we have moved aggressively to make the necessary changes, and these isolated losses by a small trading team in one part of the Firm should not overshadow the momentum we see in virtually all of our other businesses.
In 2007, Morgan Stanley delivered record results in Investment Banking, Equities and Asset Management, and pre-tax income more than doubled in Global Wealth Management. We have put in place a new leadership team that has the right skills to help us build on that strong performance and realize the tremendous opportunities across Morgan Stanley’s world-class franchise.
As we look to drive growth and profitability, we also have consolidated our proprietary trading activities, further enhanced our risk management function and bolstered our already strong capital position with a long-term investment from China Investment Corporation. While market conditions are likely to be challenging, we are moving forward with an intense focus on continuing to build our global platform and delivering value for our clients and our shareholders.
