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Opinion

Abigail Hofman: Morgan Stanley’s worrying slide

The received wisdom is that if Morgan Stanley gets into too much trouble, Mitsubishi will step in to save it. Will that still be the case now that Nomura’s grandiose international project has ended with a whimper?

Could the same be said of US broker Morgan Stanley? Don’t forget that Japanese financial institution Mitsubishi UFJ has a 20% stake in Stanley. The received wisdom is that if Morgan Stanley gets into too much trouble, Mitsubishi will step in to save it. Will that still be the case now that Nomura’s grandiose international project has ended with a whimper?

Morgan Stanley’s second-quarter results were disappointing verging on the dreadful, depending on how charitable you are feeling. Net income fell more than 50% from the previous year. Net revenue in fixed income and commodities fell to $770 million in the period – down some 60% year on year.

The firm is trying to reduce risk-weighted assets and build market share in this area. The two aims might not be compatible. Stanley blamed the poor results on the threat of a Moody’s double downgrade that hovered Damacles-like over them during the period.

The excuse seems a little glib and I worry about the Good Ship Gorman. Indeed I have been worrying for a while. Eighteen months ago, in my March 2011 column, I wrote that CEO James Gorman might face "exile" if the firm could not produce consistent results.

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