Morgan Stanley Announce Significant Writedowns

by Stewart Douglas

Story link: Morgan Stanley Announce Significant Writedowns

Investment bank Morgan Stanley has today announced a $9.4 billion writedown in order to correct the value of some of its sub-prime exposure, in a move that far exceeded analyst expectations of a much smaller writedown over the period, on a day it also announced it had sold part of its equity to a Chinese-backed investment fund.

The bank’s announcement has been seen as a major set-back after what has been a difficult period for the industry as a whole off the back of the sub-prime sector collapse in the US, which led to the current credit crunch, and the writedowns reported by investment banks over the last few months.

The bank announced that it was to writedown $9.4 billion in lost asset value over the three months ended November, after taking a writedown of $3.7 billion just last month, highlighting the growing problems within its fixed income securities linked to the sub-prime sector.

Also today the bank announced it had sold just under 10% of their company to the China Investment Corp, a sovereign wealth fund backed by the Chinese authorities. The $5 billion equity value is thought to be designed to aid its capital reconstruction and help support the writedowns experienced over the last two months.

The turbulence over the last few months has already paved the way for executive Zoe Cruz to depart service, whilst reverberations around the industry have also seen executives fall from most other top investment banks.

Amidst the news current chief executive John Mack renounced his right to a bonus at the end of the year, and described the results as a disappointment for the firm and its employees. However, he added that there were changes afoot designed to help minimise further exposure.