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Morgan Stanley 'set to take massive hit'
Jim Armitage, Evening Standard7 Nov 2007
Morgan Stanley chief executive John Mack is the latest Wall Street boss to come under the spotlight after analysts predicted his firm will take a multi-billion dollar hit in the fourth quarter as the credit crisis shows no signs of abating.
Two analysts are forecasting that the firm, whose European headquarters are at Canary Wharf, may take a fourthquarter write-down of between $3 billion and $6 billion (£1.4 billion and £2.9 billion). Their predictions came just hours before Societe Generale, France's second-biggest listed bank, posted an 11.5% fall in third-quarter net profits due mainly to lower earnings in corporate and investment banking.
Morgan Stanley shares fell 1.94% in New York overnight after Mike Mayo of Deutsche Bank predicted possible writedowns of between $3 billion and $4 billion and David Trone of Fox-Pitt, Kelton projected $4 billion to $6 billion.
The estimates follow disclosures of big hits at rivals Merrill Lynch and Citigroup, both of whose chief executives have resigned over such losses.
On Monday, Citigroup chief executive Charles "Chuck" Prince quit after the bank said it faced mortgage write-downs of $8 billion to $11 billion in the fourth quarter after $3.5 billion of third-quarter hits. This followed the resignation of Merrill Lynch's Stan O'Neal last week after the bank announced an $8.4 billion write-down for its third quarter ended in September, and analysts estimated it may take another $4 billion or more in hits for the fourth quarter.
Pressure has also been mounting on Bear Stearns boss James Cayne.
Morgan Stanley is one of four Wall Street firms that in mid-December will report results for the fourth quarter ending this month.
Morgan Stanley, Lehman Brothers, Bear Stearns and Goldman Sachs all gave their last earnings report in mid-September based on the quarters ended in August. Citigroup and Merrill reported for periods including September, when the debt market downturn worsened. For its third quarter ended in August, Morgan Stanley unveiled $940 million in write-downs for buyoutfinancing commitments, $480 million in quantitative stock-trading losses, including $390 million in losses occurring on a single day, and a $1 billion drop-off in bond revenue, reflecting losses in mortgage-related securities.
