This page has been archived and commenting is disabled.

Morgan Stanley Discloses $8.5 Billion In Europe Exposure, 8 Trading Day Losses, Lists Impacts Of US Downgrade On Market And Its Business

Tyler Durden's picture




 

Some very interesting data points were disclosed in Morgan Stanley's just released 10Q. First, we learn that in the last quarter, the company which had "blow out" earnings, at least compared to expectations and Goldman, actually was not much to write home about by typical Wall Street standards, with a whopping 8 days of trading losses in Q2. Considering that most Wall Street firms had quarters in a row with no daily trading losses, this is, sadly, quite disappointing. (Granted, there is that >$200 million outlier. We would love to know just what the full amount of that one day profit was, which alas does not have a ceiling in the histogram)

Next, and more important, is that MS has disclosed it has a rather substantial $5 billion in gross exposure to the PIIGS, as well as another $3.5 billion in funding exposure to Europe. Considering that most European banks had already offloaded their PIIGS exposure, at least we now know who they were offloading risk to.

Country Exposure—Exposure to European Peripherals.    In connection with certain of its Institutional Securities business segment activities, the Company has exposure to European peripheral countries, which are defined as exposures in Greece, Ireland, Italy, Portugal and Spain. At June 30, 2011, gross funded exposure before the benefit of hedges was approximately $5 billion and net funded exposure after hedges was approximately $2 billion. Gross funded exposure includes obligations from sovereign governments, corporations, and financial institutions. In addition to the gross funded exposure, at June 30, 2011, the Company had European peripheral country exposure for overnight deposits with banks of approximately $2 billion and unfunded loans to corporations of approximately $1.5 billion.

Next, in term of potential downgrades, which Morgan Stanley is now very much exposed to following the S&P action on Friday, we learn that the company may face up to a $1.4 billion margin call in the case of a two-notch downgrade.

The Company is required to pledge additional collateral to certain exchanges and clearing organizations in the event of a credit rating downgrade. At June 30, 2011, the increased collateral requirement at certain exchanges and clearing organizations was $178 million in the event of a one-notch downgrade of the Company’s long-term credit rating. A total of $1,371 million of collateral is required in the event of a two-notch downgrade.

Lastly, from the risk factors we read that a US downgrade will likley not be beneficial to Morgan Stanley:

Concerns regarding downgrade of the U.S. credit rating and the sovereign debt crisis in Europe could have a material adverse effect on our business, financial condition and liquidity.

 

On August 5, 2011, Standard & Poor’s lowered its long term sovereign credit rating on the United States of America from AAA to AA+. While U.S. lawmakers reached agreement to raise the federal debt ceiling on August 2, 2011, the downgrade reflected Standard & Poor’s view that the fiscal consolidation plan within that agreement fell short of what would be necessary to stabilize the U.S. government’s medium term debt dynamics. This downgrade could have material adverse impacts on financial markets and economic conditions in the United States and throughout the world and, in turn, the market’s anticipation of these impacts could have a material adverse effect on our business, financial condition and liquidity. In particular, it could disrupt payment systems, money markets, long-term or short-term fixed income markets, foreign exchange markets, commodities markets and equity markets and adversely affect the cost and availability of funding and certain impacts, such as increased spreads in money market and other short term rates, have been experienced already as the market anticipated the downgrade. In addition, it could adversely affect our credit ratings, as well as those of our clients and/or counterparties and could require us to post additional collateral on loans collateralized by U.S. Treasury securities. Because of the unprecedented nature of negative credit rating actions with respect to U.S. government obligations, the ultimate impacts on global markets and our business, financial condition and liquidity are unpredictable and may not be immediately apparent.

In addition, global markets and economic conditions have been negatively impacted by the ability of certain European Union (“EU”) member states to service their sovereign debt obligations. The continued uncertainty over the outcome of the EU governments’ financial support programs and the possibility that other EU member states may experience similar financial troubles could further disrupt global markets. In particular, it has and could in the future disrupt equity markets and result in volatile bond yields on the sovereign debt of EU members. These factors could have an adverse effect on our business, financial condition and liquidity. In particular, in connection with certain of our Institutional Securities business segment activities, we have exposure to European peripheral countries, which are defined as exposures in Greece, Ireland, Italy, Portugal and Spain. At June 30, 2011, gross funded exposure before the benefit of hedges to European peripheral countries was approximately $5 billion and net funded exposure after hedges was approximately $2 billion. Gross funded exposure includes obligations from sovereign governments, corporations, and financial institutions. In addition to the gross funded exposure, at June 30, 2011, the Company had European peripheral country exposure for overnight deposits with banks of approximately $2 billion and unfunded loans to corporations of approximately $1.5 billion.

Bottom line: add MS to the list of CDS going wider side by side with BAC.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 08/08/2011 - 08:55 | 1536480 WonderDawg
WonderDawg's picture

Reality, bitchez.

SJGR

Mon, 08/08/2011 - 08:56 | 1536482 cossack55
cossack55's picture

If anyone snaps a photo of Blythe or Jaimie on the way past their 42nd floor window, I'll buy a print. Thanks.

Mon, 08/08/2011 - 08:57 | 1536489 entendance
entendance's picture

-- Germany dashes hopes of beefed-up rescue fund
-- EFSF to remain at pre-July 21 level, government spokesman says
-- Strains growing within German coalition government

http://www.entendance.com/forums/viewtopic.php?f=5&t=762&p=18616#p18616

 

Mon, 08/08/2011 - 09:00 | 1536496 DormRoom
DormRoom's picture

That >200M day was from Sino Forest.  MS has been a huge buyer of it over the last month.

Mon, 08/08/2011 - 09:03 | 1536503 dwdollar
dwdollar's picture

Everyone have their Bug Out Bags ready?

Mon, 08/08/2011 - 09:04 | 1536504 John McCloy
John McCloy's picture

And now this important PSA brought to you by Sheila Bair & Suze Orman:

http://www.youtube.com/watch?v=JhrCPhYk5m8

Mon, 08/08/2011 - 09:12 | 1536528 tip e. canoe
tip e. canoe's picture

i'm sure Suze has a ton of shoeboxes lying around.   wonder what she uses them for?

Mon, 08/08/2011 - 09:04 | 1536506 topcallingtroll
topcallingtroll's picture

you can't have zero days without trading losses unless you are cheating.  It is impossible.

Mon, 08/08/2011 - 09:05 | 1536508 Jim in MN
Jim in MN's picture

This just in from Japan as the populace tries to signal how deep the shit really is there...

Record number of fans imported in June

The number of electric fans imported by Japan rose to a record high in June, as many people are trying to save energy because of anticipated power shortages.

According to the Tokyo Customs, nearly 2.2 million foreign-made fans landed at the Tokyo port last month. This is roughly triple the figure for a year earlier and the highest monthly total since 1979 when customs began taking statistics.

The value of imported fans also marked a record high of about 2.7 billion yen, or about 35 million dollars.

More than 98 percent of the imported fans were from China, followed by Thailand and Taiwan.

The sharp increase is attributed to increasing demand for fans, which need less electricity than air-conditioners.

Japanese electric appliance makers have boosted their overseas production as retailers want to stock more fans.

The Tokyo Customs says imports of electric fans shot up in the 2 months before summer, and they will remain at this high level through the early autumn if the hot weather continues.

Sunday, July 31, 2011 22:41 +0900 (JST)

Mon, 08/08/2011 - 09:11 | 1536521 tip e. canoe
tip e. canoe's picture

thing about those fans is that it will be easy to collect samples to test for radioactivity.   just take a swab off a blade and voila.

Mon, 08/08/2011 - 09:19 | 1536561 WonderDawg
WonderDawg's picture

Tons of shit, need more fans.

Mon, 08/08/2011 - 09:19 | 1536563 Miss Expectations
Miss Expectations's picture

but, among collectors, Japan is famous for these kind of fans:

http://upload.wikimedia.org/wikipedia/commons/1/12/Fan_of_Japanese_Cypre...

Mon, 08/08/2011 - 09:05 | 1536509 Mae Kadoodie
Mae Kadoodie's picture

Bank run, bitchez.

Mon, 08/08/2011 - 09:05 | 1536510 Snidley Whipsnae
Snidley Whipsnae's picture

Bernie to Wall St Bankers "Take these PIIGS crap bonds and add them to the other crap on (or off) your balance sheets, You all owe me one!"

And US taxpayers will be stuck with another debt transfer. Gotta socialize those losses!

Mon, 08/08/2011 - 09:06 | 1536512 Stormdancer
Stormdancer's picture

JP Morgan is certainly getting a public relations downgrade at Blythe's new blog. Go read the comments if you need a bit of levity in your morning:

http://blythemasters.blogspot.com/2011/08/blythe-masters-in-daily-pennsy...

Mon, 08/08/2011 - 09:07 | 1536514 Byte Me
Byte Me's picture

Sad man,

Sooooooooo saaaaaaaaad for them.

Mon, 08/08/2011 - 09:10 | 1536520 monopoly
monopoly's picture

GS just cut Spoos to 1,400 from 1,450 but they did not mention what year that might be. Hmmmm

Mon, 08/08/2011 - 09:11 | 1536522 Mediocritas
Mediocritas's picture

could require us to post additional collateral on loans collateralized by U.S. Treasury securities

There it is. The primary problem. A whole bunch of European banks that were already on the edge will get pushed over by this very same thing.

Mon, 08/08/2011 - 09:11 | 1536524 monopoly
monopoly's picture

There is that old saying here on Wall Street All, It does not matter....till it does. We might be getting close.

Mon, 08/08/2011 - 09:11 | 1536525 MonkeySmoke
MonkeySmoke's picture

these criminal bastards have lied, cheated, stolen and purchased CONgress. Why do I care if their "risk" goes up? I hope their stock goes to zero and the doors are closed forever. That's all they deserve at this point. My sincere hope is that north of 20% of the American citizenry either borrows against or closes out their 401k/IRA's by weeks end and purchase silver and gold with the proceeds. That would be poetic justice.

Mon, 08/08/2011 - 09:14 | 1536530 stockjocky
stockjocky's picture

wow, losing trading days..I'm shocked

 

Mon, 08/08/2011 - 10:57 | 1537160 RockyRacoon
RockyRacoon's picture

Not a problem.  Is there any sentient being who doesn't believe that they will be bailed out if/when needed?   Much do-do about nothing.

Wed, 09/14/2011 - 05:09 | 1667513 chinawholesaler
chinawholesaler's picture

Wholesale Bag
Promotional Gifts

Promotional Gifts
Wholesale Mouse
Wholesale Clothes Rack

Wedding Favors
Wholesale Clap Hands
Wholesale Radio

Wholesale Calculator
Patient Care Products
Money Bank

Sport Support Products
Reflective Safety Vest
Patient Care Products

Inflatable Products
Wholesale Bedding
Crystal Gifts

Wholesale Candle
Wholesale Candle
Advertising Material

Wholesale Radio
Wholesale Stapler
Wholesale Calculator

Medicine Instrument
Wholesale Compass
Consumer Electronics

Wholesale Scissors
Wholesale Compressed Products
Audio Video Equipment

Wholesale Mug
Wholesale Stress Ball
Water Bottle

Wholesale Cap
Money Bank
Wholesale Album

Christmas Gifts
Safety Products
Wholesale Mirror

Wholesale Pen
Wholesale Speakers
Wholesale Bag

Wholesale Frisbee
Eye Mask
Wholesale Compass

Valentine Gifts

Do NOT follow this link or you will be banned from the site!