Monday, November 24, 2008

Morgan Stanley's Near-Fall \ Citi Saw No Red Flags

Extreme Makeover at Morgan Stanley-figuring out where to go from here

Rubin, Under Fire, Defends His Role at Citi DiscussionWSJ 11/29 UPDATE

Bailout now has a mission statement; you can read it here.

A mystery is how even relatively strong firms like Morgan Stanley were battered so quickly. According to The Wall Street Journal, it appears that a confluence of events combined to deliver a huge blow to the blue-chip investment firm. Active buying in the market for credit default swaps, increased short selling by hedge funds and whispers in clients’ ears by rival banks all increased during the time that Morgan Stanley’s stock plummeted to new lows.

Journal says that it’s hard to prove that anything untoward was done, especially in the opaque credit default swaps market. But it quotes memos from Morgan Stanley officials that suggest executives from the company suspected that some traders were doing just that.

Citigroup Saw No Red Flags as It Made Bolder Bets

Citi and the U.S. government in talks to create a "bad bank" to remove toxic from Citi's balance sheet. WSJ Online article

September 2007, Citigroup CEO, Charles Prince learned for the first time that the bank owned about $43 billion in mortgage-related assets. Asked Citi Tradin head Thomas Maheras whether everything was OK and Maheras told his boss that no big losses were looming. Normally, a big bank would never allow the word of just one executive to carry so much weight. Instead, it would have its risk managers aggressively look over any shoulder and guard against trading or lending excesses.

Citi insiders say the bank’s risk managers never investigated deeply enough. Because of longstanding ties that clouded their judgment, the very people charged with overseeing deal makers eager to increase short-term earnings — and executives’ multimillion-dollar bonuses — failed to rein them in, these insiders say.
Citigroup’s woes are emblematic of the haphazard management and rush to riches that enveloped all of Wall Street. Summary and link to Full Article

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