Morgan Stanley Burned by $911 Million Hit on Archegos Blowup
(Bloomberg) — Morgan Stanley surprised investors with a $911 million loss tied to the collapse of Archegos Capital Management, staining what was otherwise a record quarter for revenue and profit.
The hit was related to Archegos, a person familiar with the matter confirmed.
The Archegos disclosure leaves Morgan Stanley as the only major U.S. bank to be nursing losses from the flameout of Bill Hwang’s family office. New York-based Morgan Stanley was one of the early backers of Archegos despite the legal taint tied to Hwang, who was previously accused of insider trading and in 2012 pleaded guilty to wire fraud on behalf of his predecessor hedge fund, Tiger Asia Management.
The collapse rattled investment banks across continents, with Credit Suisse Group AG emerging as the worst hit with almost $5 billion in losses from its exposure to the family office.
Morgan Stanley’s equity traders gave up their No. 1 spot, falling behind Goldman Sachs Group Inc. and JPMorgan Chase & Co., which posted big trading wins earlier this week off a wild quarter for markets.
Equities-trading revenue at Morgan Stanley rose 17% to $2.88 billion, compared with the $2.6 billion average estimate of analysts surveyed by Bloomberg. Goldman Sachs and JPMorgan have been clawing away at Morgan Stanley’s lead in that business, but until now the firm has managed to stay ahead of the pack. Both rivals posted equities revenue in excess of $3 billion for the quarter.
Morgan Stanley’s shares climbed 18% this year through Thursday. The stock fell 1% at 7:45 a.m. in early trading in New York.
In January, Morgan Stanley Chief Executive Officer James Gorman leaped past Jamie Dimon as the best-paid CEO of a major U.S. bank, after being awarded $33 million for the firm’s performance in 2020 while running a firm that’s a third the size of JPMorgan.
Fixed-income trading revenue at Morgan Stanley rose 44% to $2.97 billion, compared with the $2.2 billion analysts were predicting before earnings season kicked off.
Morgan Stanley’s investment bankers pulled in $2.61 billion in fees, compared to the $2 billion analyst estimate, as equity underwriting quadrupled. The quarter proved particularly lucrative with the continued explosion in blank-check companies, better known as SPACs, as well as public offerings from technology companies.
Banks are also having to fend off fierce demand for their top talent, with venture-capital firm General Catalyst this month luring away Paul Kwan, Morgan Stanley’s head of West Coast technology investment banking.
Wealth-management revenue totaled $5.96 billion, up from $5.68 billion in the previous quarter.