The quote is from Gerard Minack, Morgan Stanley’s celebrated equity strategist, based in Australia.
He retired from the bank on Friday and his final thoughts are in the usual place.
Investing is an unusual profession: perhaps the only one where amateurs have a good shot at beating the pros. However, evidence suggests that amateurs don’t: flow data indicate that retail often buys high and sells low.
Spare a moment for Felix Vulis, chief executive of embattled miner ENRC. At pixel time, Kleinmanwire was reporting (exclusively, obvs) that both Deutsche Bank and Morgan Stanley have resigned as brokers to ENRC.
In the middle of a possible takeover bid and a very real SFO investigation… Read more
WARNING: what has happened is no guarantee of what will happen.
WARNING II: if you need the first WARNING, perhaps see us after class?
Anyway… here’s some January European equity lessons from Morgan Stanley: Read more
Buried in Morgan Stanley’s decent third-quarter results (excluding the absurdity that is DVA of course) is this intriguing footnote:
Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $63 million compared with $76 million in second quarter of 2012 and $99 million in the third quarter of the prior year. The Firm modified its VaR model this quarter to make it more responsive to recent market conditions.
A few nervous bid arbitrageurs have their eyes on the Qataris right now — wondering, expectantly, whether the Gulf state’s sovereign wealth fund will now support the
takeover merger of equals between Glencore and Xstrata.
The Glenstrata share ratio has been hiked and the Qataris, it is assumed, don’t really care about the size of retention bonuses at Xstrata. But a public endorsement of the deal was noticeably lacking on Monday… Read more
Citi and Morgan Stanley vs the S&P at pixel time, unlocking value by finally parting ways (seemingly):
If you thought Moody’s and the IMF’s cuts were bad check out Morgan Stanley:
We make substantial downward revisions to our UK GDP growth forecasts from 0.5% and 1.8% GDP in 2012 and 2013, respectively, to -0.5% and 1.0%. In terms of GDP growth, our new central case is now very similar to our previous bear case… Read more
FT Alphaville has presented its case on negative rates and zero deposit rates here and here (amongst other places).
What we believe is that rather than stimulating the lending market — and the economy along with it — such a rate policy could have a disastrous impact on collateral markets and money market funds, not to mention the net interest income of lending institutions. All of which could unleash a protracted deflationary spiral. Read more
Barton Biggs, investor, global strategist and founder of Morgan Stanley Investment Management, died on Saturday after a short illness. He was 79.
James Gorman, Morgan Stanley’s chief executive, revealed the news in a memo to staff on Monday: Read more
It’s been a little while since we had a nice Libor risk estimate so we were delighted when Morgan Stanley’s attempt dropped into our inbox. MS take the Libor risk in three chunks:
1) Regulatory fines (an estimated median 7 to 12 per cent hit to 2012 EPS). From MS (all with our emphasis): Read more
Just in case the real trophies never get cast, here are the advisers to the
$90 $80 $70 $60 $55(?)bn putative merger between Glencore and Xstrata. Click to enlarge.
First there was the foul-up over competition issues. Unbelievably, Glenstrata had not factored in the likelihood of a referral to the European authorities. Read more
The story so far:
In Part 1, we reminded you of Morgan Stanley’s footnote in their fourth quarter earnings, whereby the bank stated that it had reduced its exposure to Italy by $3.4bn while benefiting from a positive hit to net revenue of $600m. All of this was as a result of restructuring certain derivatives transactions with the sovereign. Read more
Or, “This House believes all interesting things are in footnotes and FT Alphaville reader comments.”
Allow us to make the case in favour of the motion. Beginning with: Read more
This Bloomberg Markets headline (koan?) attracted puzzlement on Monday:
Gorman Embracing Vegemite in New Wall Street’s 15% Bogey at Morgan Stanley Read more
In Part 1, we looked in and around Morgan Stanley’s mysterious little footnote about how the bank had reduced net exposure to Italy from $4.9bn to $1.5bn with a restructuring that settled in the early days of 2012.
As the bank doesn’t want to give any additional detail on what the restructuring, the below outlines some of the possibilities and the implications thereof. We emphasise that we don’t know which is the case and, again, we did ask Morgan Stanley for comment. Read more
(7) On December 22, 2011, the Company executed certain derivative restructuring amendments which settled on January 3, 2012. …
This mysterious little footnote announced to the world that in the fourth quarter, Morgan Stanley managed to arrange a deal that reduced the bank’s net exposure to Italy from $4.9bn to $1.5bn. Read more
Facebook is expected to submit paperwork to regulators on Wednesday morning for a $5bn initial public offering and has selected Morgan Stanley and four other bookrunners to handle the mega-IPO, IFR says, citing sources close to the deal. Morgan Stanley will take the coveted “lead left” role in what is expected to be the largest IPO ever to emerge from Silicon Valley, with the other four bookrunners being Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital and JP Morgan, although the underwriting syndicate could be expanded later, IFR cited the sources as saying. Facebook declined to comment. Getting picked for the IPO is a coup for Morgan Stanley and Michael Grimes, the global co-head of the bank’s technology investment banking unit, says Bloomberg. The group won the biggest share of business underwriting US initial offers by internet companies last year, and taking the lead on Facebook may catapult it to the top of the US IPO league table for a third consecutive year.
Morgan Stanley plans plans to cap cash payouts at $125,000, the WSJ says, citing people familiar with the matter. Some top executives will receive nothing now, deferring their 2011 payouts until the end of this year. The bank will defer the portion of any bonus past $125,000 until December 2012 and December 2013, according to one of the people, and chief executive Gorman and the other nine members of Morgan Stanley’s operating committee will defer their entire bonuses for the year. The changes to the structure of compensation at Morgan Stanley are in line with forthcoming rules on compensation in the US, the FT reports, which will require banks to emphasise clawback provisions and to defer bonuses. However, to the chagrin of some European bankers and regulators, the US rules are less prescriptive than in Europe.
JPMorgan’s fourth-quarter revenue miss has dampened the outlook for the banks reporting this week, who include Goldman Sachs, Bank of America, Citigroup and Morgan Stanley, the FT reports. Nevertheless, financial stocks have the highest predicted earnings growth rate – 24.3 per cent – in the S&P 500 index, according to FactSet, and the Federal Reserve is also expected to allow Citigroup to increase its dividend beyond one per cent. However, a round of cost-cutting is likely to come at Goldman and Morgan Stanley, following further tough trading and sparse business from clients in the last months of 2011.
Some €15-45bn for Spanish banks and their government’s bonds at least, according to Morgan Stanley’s Huw Van Steenis, who has just produced a very interesting note on the carry trade du jour – or to use its technical name the ECB’s 3-year LTRO.
The two 3-year long-term repo operations (LTROs) are key pieces of a welcome package to ensure that, even if term unsecured debt remains impractically expensive, Europe’s banks will be able to continue to fund their assets. But could it also be a backdoor route to help sovereign funding, as some policy makers hope? Read more
Morgan Stanley has resolved its legal conflicts with bond insurer MBIA, ending a long-running dispute tied to guarantees of mortgage securities that will result in the bank recording a $1.8bn pre-tax loss, the FT reports. MBIA will pay Morgan Stanley $1.1bn as part of the settlement, which will end lawsuits the companies launched against one another and extinguish $4bn in insurance contracts tied to mortgage securities that Morgan Stanley purchased from the bond insurer, the FT says, citing a person with direct knowledge of the matter. The settlement ends Morgan Stanley’s role in a 2009 lawsuit launched by 18 banks against the insurer and New York state’s financial regulator for restructuring the company during the height of the financial crisis in a way that allegedly harmed Wall Street counterparties. Morgan Stanley had about $2.7bn in exposure to MBIA in the form of derivatives and another $144m in exposure to bond insurers overall related to guarantees on mortgages and other asset-backed securities, according to its third-quarter filing with the US Securities and Exchange Commission.
Morgan Stanley’s Graham Secker makes some interesting observations in his 2012 outlook report.
Chief among them is that the investment framework of the last 25 years is increasingly irrelevant and that Japan offers the best guide to what might happen in the equity market over the next decade. Read more
Lloyds has sold £1bn of distressed property loans in Australia and New Zealand to Goldman Sachs and Morgan Stanley, the FT reports, taking the UK bank a step closer to unwinding the £24bn of distressed property loans on its books. Goldman, which is working in partnership with asset manager Brookfield, will take control of Lloyds £600m portfolio of loans in New Zealand. Morgan Stanley has bought 15 loans on offices, shops and up-market apartments spread along Australia’s Gold Coast, worth about £430m. Lloyds declined to discuss the price of the two deals, but said it was delighted to conclude the sale.
Mark-to-market accounting for financial assets has caused large fluctuations in profit and loss accounts for both Goldman Sachs and Morgan Stanley due to volatility in markets. While this would have been par for the course for broker dealers, the two firms became bank holding companies at the height of the crisis. Their peers within this group, such as J.P. Morgan Chase and Wells Fargo, account for less than half of their assets using mark-to-market, making their earnings less prone to swings. By contrast, Goldman Sachs uses mark-to-market for 97 per cent of its assets, the WSJ reports. Both former broker dealers are now contemplating a move away from mark-to-market to historical cost accounting for some of their assets, such as loan commitments. Regulatory approval isn’t needed for such a change which could impact their accounting results as early as the first quarter.
Wall Street Bonuses are set to fall by an average 20 to 30 per cent this year, making it the weakest bonus season since the credit crunch, underscoring the malaise in the industry, the New York Times’ Dealbook reported, citing a survey from Johnson Associates, a boutique compensation consulting firm. Employees in trading and investment banking divisions will see their pay cut proportionately more than asset managers and commercial bankers whose compensation package will equate to 2010 levels. The year-end bonus typically represents the bulk of financial employees pay and banks tend to allocate as much as 60 per cent of their annual revenue in compensation. In the first nine months of the year, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup combined allocated almost $93bn to compensate employees, up from $91.25bn, NYT said, citing figures from the survey. However, the final compensation figure is not set until the fourth quarter when firms can take stock of their annual revenue.
In keeping with the bearish mood this Monday morning, we present selected lowlights from the latest Graham Secker note.
Morgan Stanley’s European strategist has downgraded equities to “underweight” following the double-digit rally, to reflect the inadequate policy response to the Eurozone debt crisis, weakening economic growth, falling margins and some technical gubbins. Read more
If you can tell a little about someone from the books they read, you can tell a lot about them from the books they write, especially if they’re a central banker.
Morgan Stanley economist Spyros Andreopoulos has dipped into the library at the “Global Central Bank” and draws comfort from the number of “depression economics” tomes on its shelves. In case you were wondering, some of the “scholars” are: Read more
Then again, it is 1.11.11, or 11.1.11 for our American friends.
Financials taking a battering on Tuesday morning in New York (S&P 500 down 2.46 per cent at pixel time):
Companies round the world rushed to sell bonds on Thursday after a eurozone deal to tackle the region’s sovereign debt crisis sparked a rally, writes the FT. In the US, IBM, BP and Verizon were among the issuers that sold more than $12bn of debt in what was one of the busiest days for investment-grade issuance this year, Dealogic said. Tesco sold a €750m bond – its first issuance since 2009. Jim Probert, head of Americas investment grade capital markets at Bank of America Merrill Lynch said that spreads for financial companies were 25-50 basis points tighter on Thursday, while those on the bonds of investment grade industrial companies were 10bps tighter. Morgan Stanley, which had been hard hit in the recent market turmoil, sold $1bn of 10-year debt at 335bp over Treasuries. However European financials did not see such a benefit, the FT reports separately, and a slew of issuance of new bank bonds failed to materialise after the eurozone bank recapitalisation plan was announced, with only French lender BPCE upsizing its covered bond programme by €750m. Markit’s iTraxx Europe Senior Financials index, tied to the senior debt of 25 of the region’s banks, fell about 40 basis points to 203bps, its lowest since the beginning of August, suggesting investors may be becoming more comfortable with bank debt.