* Andrew Clark
* Guardian Unlimited,
* Wednesday December 19 2007
The investment bank Morgan Stanley has blamed the errant actions of a single trading team for losses of $9.4bn (£4.68bn) on the global credit crunch – a figure which prompted an apology from its chief executive.
Liabilities on mortgage-related securities pushed the Wall Street firm into the red for the first time in its 72-year history with a fourth-quarter loss of $3.58bn, although a $5bn investment from a Chinese investment firm bolstered its finances today.
The size of the write-off took analysts by surprise. In October, the bank had revealed a mortgage-related deficit of just $3.7bn. It will add to pressure on Morgan Stanley's boss, John Mack, who took responsibility for the debacle and announced that he was giving up his bonus.
"The writedown Morgan Stanley took this quarter is deeply disappointing – to me, to our colleagues, to our board and to our shareholders," said Mr Mack. "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."
For the full year, Morgan Stanley's profits were down by 57% to $3.2bn. Investment banking revenues rose by 31% to $5.5bn and equity sales were up 38% to $8.7bn, although earnings from fixed-income trading were wiped out by mortgage losses.
The outcome is particularly galling for Morgan Stanley because it spotted early signs of the looming sub-prime mortgage crisis and took steps to hedge its trading positions to protect itself against financial damage.
But poor execution allowed these hedges to fall away – a failure which prompted internal soul-searching and the recent departure of the bank's co-president, Zoe Cruz.
In a boost for Morgan Stanley's capital position, the China Investment Corporation is paying $5bn for an estimated stake of 9.9%. The deal is the second large foreign infusion of cash into Wall Street in recent months, coming hot on the heels of the Abu Dhabi Investment Authority's purchase of a $7.5bn stake in Citigroup.
Morgan Stanley emphasised that it had appointed new leadership for its trading division and that it had stepped up risk monitoring to prevent a repetition of the mortgage-related losses.
"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," said Mr Mack.
Liabilities on mortgage-related securities pushed the Wall Street firm into the red for the first time in its 72-year history with a fourth-quarter loss of $3.58bn, although a $5bn investment from a Chinese investment firm bolstered its finances today.
The size of the write-off took analysts by surprise. In October, the bank had revealed a mortgage-related deficit of just $3.7bn. It will add to pressure on Morgan Stanley's boss, John Mack, who took responsibility for the debacle and announced that he was giving up his bonus.
"The writedown Morgan Stanley took this quarter is deeply disappointing – to me, to our colleagues, to our board and to our shareholders," said Mr Mack. "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."
For the full year, Morgan Stanley's profits were down by 57% to $3.2bn. Investment banking revenues rose by 31% to $5.5bn and equity sales were up 38% to $8.7bn, although earnings from fixed-income trading were wiped out by mortgage losses.
The outcome is particularly galling for Morgan Stanley because it spotted early signs of the looming sub-prime mortgage crisis and took steps to hedge its trading positions to protect itself against financial damage.
But poor execution allowed these hedges to fall away – a failure which prompted internal soul-searching and the recent departure of the bank's co-president, Zoe Cruz.
In a boost for Morgan Stanley's capital position, the China Investment Corporation is paying $5bn for an estimated stake of 9.9%. The deal is the second large foreign infusion of cash into Wall Street in recent months, coming hot on the heels of the Abu Dhabi Investment Authority's purchase of a $7.5bn stake in Citigroup.
Morgan Stanley emphasised that it had appointed new leadership for its trading division and that it had stepped up risk monitoring to prevent a repetition of the mortgage-related losses.
"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," said Mr Mack.
On Europe
Gordon Brown, at his first EU summit, made much of the radical change of direction Europe was taking: away from institutional navel-gazing, onward and upward to the real environmental, security and economic issues - "the big challenges everyone knows we have to face," as he put it at his post-summit press conference.
But did the 27 leaders discuss the financial turmoil taking place outside - the extraordinary central bank intervention that Brown said pointed the way to greater global co-ordination, the $10bn write-downs at UBS that saw a Singaporean sovereign wealth fund become the Swiss bank's biggest shareholder, the biggest housing market collapse in the US in two decades and fears it would spread here?
"Non," said Nicolas Sarkozy, French president, in an adjoining briefing room. "Gordon Brown, Angela Merkel and I took initiatives a few weeks ago to demand greater transparency and we are thinking about other initiatives."
And that, mesdames et messieurs, was that. No reassuring - or warning - words to homeowners, employees, investors, the very citizens with whom the EU, collectively the world's biggest economy, wants to re-connect.
In the final communiqué, towards the end and drafted by senior officials weeks ago, there was, after all, a nodding reference. It spoke of "improving transparency for investors, markets and regulators, improving valuation standards, improving the prudential framework, risk management and supervision in the financial sector as well as reviewing the functioning of financial markets, including the role of credit agencies".
In other words, what we said two months ago.
And, then, the ultimate giveaway of aloofness from the genuine fears and anxieties of the 500 million citizens: the summit "will come back to these issues at its Spring 2008 meeting on the basis of a progress report".
Come back in three months and we may have something to say - or simply call for a further progress report.
Nobody expects definitive conclusions on how to recalibrate and refine financial markets supervision within a few weeks when these have to be debated and agreed with regulators and administrators across the global economy. But these mandarin phrases underline how much the EU's political life is set by a pre-determined agenda drafted within and for the benefit of the institutions that make it up.
The European economy may prove robust enough to withstand the credit crunch in the coming months - though opinions on that differ sharply - but the 27 heads of state and government might have awakened public attention if they had broken out of their institutional cocoon and addressed the most pressing issue for their voters: how real is the threat that the current and burgeoning turmoil poses to people's jobs and prosperity?
Some things don't change - at least on the surface
The Singaporean investment in UBS, accompanied by a smaller participation from an unnamed, probably Gulf-based investor, is not unique in mainland Europe where Kuwait holds 7% of car-maker Daimler and Dubai 2.2% of Deutsche Bank.
Fascinating research this week from Handelsblatt, the German financial daily, shows that overseas investors now own 53% of Germany's top 30 firms listed in the Dax - compared with a third just five years ago.
This, German commentators say, finally nails the myth - or goal - of Deutschland AG (Germany plc): the complex web of cross-holdings by banks and industrial groups in each other, designed to protect the country's corporate base from foreign takeover. It also illustrates how Germany has seized the opportunities of globalisation in a manner unmatched by its eurozone partners.
The research shows that non-Germans own 84% of Deutsche Börse, 79% of Adidas and 78% of Bayer while the Dax companies are achieving 68% of their sales overseas compared with just 30% two decades ago.
Foreign investors, the authors say, are attracted by record corporate earnings - up more than in the rest of Europe and the US - and the export performance of German companies, especially in the capital goods sector.
But some things don't change - at least on the surface. Germany's regional banks, the publicly-owned Landesbanken, are fighting for survival and turning to the shelter of each other's arms. Last week the biggest, LBBW (of Baden-Württemberg), finally agreed the terms of its takeover of SachsenLB, the only east German one, based in Leipzig, and overstretched to the point of near-bankruptcy by the sub-prime crisis. (Its exposure is €43bn).
At the same time, WestLB, suffering from a scandal at its proprietary trading desk, spurned LBBW's advances and instead opened the prospect of a merger with Helaba, the Hessen and Thuringia version. The merger with LBBW would have created Germany's second-biggest bank, by balance sheet, after Deutsche.
The alternative deal not only preserves Düsseldorf as an important banking centre alongside Frankfurt but is seen as opening the way to attracting business from medium-sized firms and to widening the customer base.
It is, of course, an all-German solution but WestLB says that shareholders - government and savings banks - are open to financial investors. But who might be interested given the ferocity with which the so-called Landesfürsten (state princes or premiers) defend the "interests" of their home state from the clutches of foreigners?
New York grill
Peter Löscher, the Austrian brought in to revitalise (and cleanse) Siemens, Europe's biggest technology group, is having a torrid time. This week he, Gerhard von Cromme, supervisory board chairman, and Peter Solmssen, head of compliance, went to New York for a grilling by the market regulator, SEC, over Siemens' corruption scandal.
The scandal, that has cost Siemens €1.5bn so far, according to Der Spiegel, simply won't go away despite Löscher's efforts to make a fresh, clean start. Nigeria, that beacon of anti-corruption, has banned the group from bidding for public contracts because of previous bribes and Norway, a genuine oasis of Nordic uprightness, has reacted similarly because its defence ministry was overcharged in the past. And a report in the Süd-deutsche Zeitung claims that auditors KPMG have told Munich prosecutors investigating the worldwide scandal that dubious payments made via a Swiss subsidiary last year were hushed up by the group.
Löscher must be praying over Christmas and new year that he and his colleagues succeeded in persuading the SEC of their genuine efforts to expurgate the past, renew management, pursue recidivists and be squeaky clean in future. Otherwise, the NYC regulator could impose the heaviest fine in its history - and one that runs into billions of euros, eating into Siemens's record earnings and improved margins. History can be relentlessly unforgiving.
But did the 27 leaders discuss the financial turmoil taking place outside - the extraordinary central bank intervention that Brown said pointed the way to greater global co-ordination, the $10bn write-downs at UBS that saw a Singaporean sovereign wealth fund become the Swiss bank's biggest shareholder, the biggest housing market collapse in the US in two decades and fears it would spread here?
"Non," said Nicolas Sarkozy, French president, in an adjoining briefing room. "Gordon Brown, Angela Merkel and I took initiatives a few weeks ago to demand greater transparency and we are thinking about other initiatives."
And that, mesdames et messieurs, was that. No reassuring - or warning - words to homeowners, employees, investors, the very citizens with whom the EU, collectively the world's biggest economy, wants to re-connect.
In the final communiqué, towards the end and drafted by senior officials weeks ago, there was, after all, a nodding reference. It spoke of "improving transparency for investors, markets and regulators, improving valuation standards, improving the prudential framework, risk management and supervision in the financial sector as well as reviewing the functioning of financial markets, including the role of credit agencies".
In other words, what we said two months ago.
And, then, the ultimate giveaway of aloofness from the genuine fears and anxieties of the 500 million citizens: the summit "will come back to these issues at its Spring 2008 meeting on the basis of a progress report".
Come back in three months and we may have something to say - or simply call for a further progress report.
Nobody expects definitive conclusions on how to recalibrate and refine financial markets supervision within a few weeks when these have to be debated and agreed with regulators and administrators across the global economy. But these mandarin phrases underline how much the EU's political life is set by a pre-determined agenda drafted within and for the benefit of the institutions that make it up.
The European economy may prove robust enough to withstand the credit crunch in the coming months - though opinions on that differ sharply - but the 27 heads of state and government might have awakened public attention if they had broken out of their institutional cocoon and addressed the most pressing issue for their voters: how real is the threat that the current and burgeoning turmoil poses to people's jobs and prosperity?
Some things don't change - at least on the surface
The Singaporean investment in UBS, accompanied by a smaller participation from an unnamed, probably Gulf-based investor, is not unique in mainland Europe where Kuwait holds 7% of car-maker Daimler and Dubai 2.2% of Deutsche Bank.
Fascinating research this week from Handelsblatt, the German financial daily, shows that overseas investors now own 53% of Germany's top 30 firms listed in the Dax - compared with a third just five years ago.
This, German commentators say, finally nails the myth - or goal - of Deutschland AG (Germany plc): the complex web of cross-holdings by banks and industrial groups in each other, designed to protect the country's corporate base from foreign takeover. It also illustrates how Germany has seized the opportunities of globalisation in a manner unmatched by its eurozone partners.
The research shows that non-Germans own 84% of Deutsche Börse, 79% of Adidas and 78% of Bayer while the Dax companies are achieving 68% of their sales overseas compared with just 30% two decades ago.
Foreign investors, the authors say, are attracted by record corporate earnings - up more than in the rest of Europe and the US - and the export performance of German companies, especially in the capital goods sector.
But some things don't change - at least on the surface. Germany's regional banks, the publicly-owned Landesbanken, are fighting for survival and turning to the shelter of each other's arms. Last week the biggest, LBBW (of Baden-Württemberg), finally agreed the terms of its takeover of SachsenLB, the only east German one, based in Leipzig, and overstretched to the point of near-bankruptcy by the sub-prime crisis. (Its exposure is €43bn).
At the same time, WestLB, suffering from a scandal at its proprietary trading desk, spurned LBBW's advances and instead opened the prospect of a merger with Helaba, the Hessen and Thuringia version. The merger with LBBW would have created Germany's second-biggest bank, by balance sheet, after Deutsche.
The alternative deal not only preserves Düsseldorf as an important banking centre alongside Frankfurt but is seen as opening the way to attracting business from medium-sized firms and to widening the customer base.
It is, of course, an all-German solution but WestLB says that shareholders - government and savings banks - are open to financial investors. But who might be interested given the ferocity with which the so-called Landesfürsten (state princes or premiers) defend the "interests" of their home state from the clutches of foreigners?
New York grill
Peter Löscher, the Austrian brought in to revitalise (and cleanse) Siemens, Europe's biggest technology group, is having a torrid time. This week he, Gerhard von Cromme, supervisory board chairman, and Peter Solmssen, head of compliance, went to New York for a grilling by the market regulator, SEC, over Siemens' corruption scandal.
The scandal, that has cost Siemens €1.5bn so far, according to Der Spiegel, simply won't go away despite Löscher's efforts to make a fresh, clean start. Nigeria, that beacon of anti-corruption, has banned the group from bidding for public contracts because of previous bribes and Norway, a genuine oasis of Nordic uprightness, has reacted similarly because its defence ministry was overcharged in the past. And a report in the Süd-deutsche Zeitung claims that auditors KPMG have told Munich prosecutors investigating the worldwide scandal that dubious payments made via a Swiss subsidiary last year were hushed up by the group.
Löscher must be praying over Christmas and new year that he and his colleagues succeeded in persuading the SEC of their genuine efforts to expurgate the past, renew management, pursue recidivists and be squeaky clean in future. Otherwise, the NYC regulator could impose the heaviest fine in its history - and one that runs into billions of euros, eating into Siemens's record earnings and improved margins. History can be relentlessly unforgiving.
... It's official.
No comments:
Post a Comment