Thursday, 20 December 2007

Morgan Stanley's 4th Quarter Shocker

An absolute shocker from Morgan Stanley. From Bloomberg:

Morgan Stanley Posts Loss, Sells Stake to China

Morgan Stanley wrote down its subprime-infected mortgage holdings by a greater-than-expected $9.4 billion and received a $5 billion cash infusion from state- controlled China Investment Corp...

...The loss of $3.61 a share in the three months ended Nov. 30 compares with net income of $1.98 billion, or $1.87, a year earlier. Analysts were estimating a loss of 39 cents, according to a survey by Bloomberg. The company, which went public in 1986, has never reported a loss...

...China Investment, the nation's sovereign wealth fund, will acquire as much as 9.9 percent of Morgan Stanley, making it the company's second-largest shareholder after Boston-based State Street Corp., according to data compiled by Bloomberg.

The fund, advised by New York-based investment bank Lazard Ltd., is buying securities that convert into Morgan Stanley shares and pay annual interest of 9 percent. China Investment won't get a seat on the board or play a role in management, Morgan Stanley said in the statement...

Incidentally the stock rallied $2.01 or 4.2% to close at $50.08. So here we have a company that posted it's biggest loss in history. have just diluted their balance their existing shareholders by 10% and added $450m in interest payments to their expense line for the next 3 years.

The only thing missing is the CEO's head served up on a platter Chuck Prince and Stan O'Neal style. But apparently what saved Morgan Stanley's CEO John Mac is that he is a nice guy and well liked, after all he did graciously decide to forgo his multi-million dollar bonus this year.

In addition to the above platitudes as to why Mac will keep his job CNBC said that there is a dearth of talent out there for such a role. How much talent does it take to lose almost $4 billion in a quarter? I'm sure there is any number of people out there who could lose such amounts if given the opportunity. Mac should go but it sounds like he probably won't. The stock price should tank and of this I am more certain. MS shares will see $40 before they see $60.