Credit Unions Return to Haunt Morgan Stanley Earnings

(Bloomberg) — Morgan Stanley raised $356 million in loans to companies stuck on its balance sheet in the fourth quarter because of the market for consumer debt, including Twitter Inc., remain weak.

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The lender led by James Gorman reported market losses on its held-for-sale debt and debt securities, which were partially offset by interest income and fees of $287 million in the period.

The figures include Morgan Stanley’s day-to-day lending as well as risky bridge loans for debt purchases that stuck with the bank when credit conditions quickly deteriorated in early 2022. . loan given to Twitter as part of Elon Musk’s acquisition of the social media company.

The other five major U.S. banks did not report losses for corporate loans in the fourth quarter as reported by JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co. , and Goldman Sachs Group Inc. on Friday and Tuesday.

It may prove the extent of the problem at Morgan Stanley, which led the financing of Twitter. The losses for the group of seven banks that supported the use of Musk may be about $ 4 billion, Bloomberg reported. Morgan Stanley led the financing and is the most exposed to about 27% of the debt.

When Wells Fargo asked banking analyst Mike Mayo about the deal on Tuesday’s earnings call, Morgan Stanley Gorman CEO declined to talk specifically and defended the credit business.

“I’m not talking about Twitter. We don’t talk about the same names as you would expect,” he said.

“The way I think about this is that we are running a mixed business. We certainly have one debt at a time that is disappointing to others, but the total amount,” he added. said Gorman. “And the amount of packages, when you look at it, it’s really good considering the environment we’re in.”

For the full year 2022, Morgan Stanley saw $876 million in market losses on corporate loans held for sale and loans, softened by a $701 million gain in interest income and fees. .

A representative of the bank declined to comment beyond the earnings call.

Overall, Morgan Stanley’s earnings beat analysts’ expectations on wealth management data although it missed the the company’s traders.

Banks that are saddled with so-called bad debt are often marked-to-market assets based on what the secondary market might value them for. debt upon dismissal. Lenders later realize these losses when selling at a discount. Banks do not usually disclose whether a loss is on paper or recognized in their income statement.

In the second quarter of 2022, when the cost of credit and the use of loans fell, the top six American banks reported about $ 1.3 billion of these losses in total.

In the third quarter, when the price drop remained constant, only Morgan Stanley and Citigroup completely lost figures in the US, for a loss of about $ 200 million in total. And now in the fourth quarter, Morgan Stanley stands out for explaining the pain.

On a media call for Bank of America’s earnings on Friday, which accounts for about 21% of Twitter’s debt, chief financial officer Alastair Borthwick declined to comment. give a new statement on the outlook for the use of money, which he described as “equal story.” in the first quarter.

But just because other banks do not disclose their losses does not mean that they are free from pain, since only the material needs to be disclosed.

“Each bank has its own steps for how they define the material, and it usually depends on the size of the company,” said Brennan Hawken, a banker at UBS Group AG.

–With assistance from Lisa Lee, Katherine Doherty and Sally Bakewell.

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