Morgan Stanley: Morgan Stanley reveals $911 million Archegos loss as profit jumps

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Morgan Stanley misplaced practically $1 billion from the collapse of household workplace Archegos Capital Management, the financial institution mentioned on Friday, muddying its 150% bounce in first-quarter profit that was powered by a increase in buying and selling and deal-making.

Morgan Stanley was one among a number of banks that had publicity to Archegos, which defaulted on margin calls late final month and triggered a hearth sale of shares throughout Wall Street.

Morgan Stanley misplaced $644 million by promoting shares it held associated to Archegos’ positions, and one other $267 million making an attempt to “derisk” them, Morgan Stanley Chief Executive James Gorman mentioned on a name with analysts.

“I regard that decision as necessary and money well spent,” he mentioned.

Morgan Stanley will not be alone in nursing losses as a chief dealer for Archegos. Switzerland’s Credit Suisse Group AG and Japan’s Nomura Holdings Inc bore the brunt, having misplaced $4.7 billion and $2 billion, respectively.

Goldman Sachs Group Inc, Deutsche Bank and Wells Fargo & Co additionally dealt with Archegos positions however exited them with out losses, Reuters and different media retailers have reported.

The collateral necessities Morgan Stanley imposed on Archegos had been primarily based on info that “turned out not to be true,” Chief Financial Officer Jonathan Pruzan mentioned. Morgan Stanley was not conscious that Archegos had comparable, giant positions at a number of banks throughout Wall Street.

Nonetheless, Morgan Stanley has not modified its view concerning the prime brokerage enterprise, Gorman mentioned. The financial institution didn’t disclose losses immediately as a result of they weren’t deemed materials within the context of its general outcomes, he added.

The Archegos saga is prone to have regulatory repercussions, nevertheless, with a slew of U.S. watchdogs as nicely as the Senate Banking Committee all probing the incident to raised perceive why some banks had been so uncovered to a single consumer.

Gorman appeared exasperated at instances in the course of the name as he confronted repeated questions from analysts about Archegos, distracting from the financial institution’s in any other case stellar efficiency.

Morgan Stanley’s shares had been down 0.5% in early buying and selling.

“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 be aware to purchasers.

Although Morgan Stanley’s Archegos loss dominated the dialogue on Friday, its first-quarter profit comfortably beat expectations. Its report wrapped up a sturdy quarter for the largest U.S. banks, which benefited from reserve releases and file capital markets exercise.

A spike in buying and selling, partly pushed by a Reddit-fueled buying and selling frenzy in “meme” shares like GameStop Corp, drove a 66% bounce in income at Morgan Stanley’s institutional securities enterprise.

Unlike rivals JPMorgan Chase & Co and Bank of America, Morgan Stanley and Goldman Sachs lack massive client lending models, which has restricted their publicity to mortgage issues in the course of the pandemic and allowed them to deal with funding banking and buying and selling.

Morgan Stanley’s profit rose to $3.98 billion, or $2.19 per share, within the quarter ended March 31, from $1.59 billion, or $1.01 per share, a 12 months in the past.

Analysts had been searching for a profit of $1.70 per share, in accordance with IBES information from Refinitiv.

Net income jumped 61% to $15.72 billion.

Like larger rival Goldman Sachs, Morgan Stanley benefited from an unprecedented increase in dealmaking via particular goal acquisition corporations (SPACs).

Global funding banking charges hit an all-time file of $39.4 billion in the course of the March quarter, in accordance with information from Refinitiv.

Morgan Stanley additionally generated good-looking charges from a spate of mergers and by underwriting quite a few high-profile IPOs of corporations together with Affirm Holdings and AppLovin Corp .

Its funding banking income greater than doubled to $2.6 billion.

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