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Opinion

Morgan Stanley’s 10Q blunder

What is Morgan Stanley doing increasing derivatives exposure to non-investment-grade credits? That was the question a lone investor posed after looking at the investment bank's 10Q.

Euromoney decided to investigate, and put in a call to the investment bank. Ten days later, on November 1, we got our answer: it hasn't; the numbers were wrong. The bank released an amended 10Q to that effect.

The original filing had Morgan Stanley increasing its quarterly exposure to collateralized non-investment-grade derivatives more than threefold, to 10% of total exposure, and its non-collateralized non-investment grade exposure by half to 9%.

Exposure to the lucrative five-year plus maturity exposure increased by 750%, from $502 million to $3.7 billion.

Let's not exaggerate matters: this was no restatement of earnings, and there was much less exposure to sub-investment-grade credits than originally announced. Exposure to collateralized non-investment-grade credits only increased by one percentage point, to 4%, while exposure to uncollateralized non-investment-grade credits dropped to 4% of the total. And there was only $828 million of exposure to non-investment-grade maturities longer than five years, not $3.7 billion.

Morgan Stanley refuses to comment, but sources tell us the problem was traced back to a glitch in a recently amended computer program.

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