With the exception of Goldman Sachs, many of the leading lights on Wall Street and the City are having the worst Christmas since the depression.
Morgan Stanley reported the first quarterly loss in its 72-year history Wednesday, heightening fears that the financial toll would keep mounting from the fast-spreading crisis in the subprime mortgage market.
The company took a $9.4 billion charge on subprime-linked investments for the fourth quarter, bringing its cumulative charges for subprime mortgages to $10.8 billion. In a stark reflection of its diminished status it also said it would sell a $5 billion stake to a Chinese investment fund to shore up its capital.
Wall Street banks so far have reported more than $40 billion of losses as a result of the crisis in the mortgage market. Worst-case estimates put the eventual bill at $200 billion or more. The tally is likely to rise again Thursday when Bear Stearns is expected to report a quarterly loss.
The developments on Wednesday were a stunning turn of events for Morgan Stanley, an offshoot of the Morgan banking dynasty that has counseled corporate America since the Depression. John J. Mack, the bank’s chief executive, said he took full responsibility and would forgo a bonus for 2007.
Like Citigroup and UBS of Switzerland, Morgan Stanley has turned to a wealthy investor from the East after losing billions of dollars on subprime-tainted investments. Morgan Stanley lost $3.59 billion for the fourth quarter. It said its remaining subprime exposure was $1.8 billion.
Bonuses will be slim - A cousin in London tells me that masses of her friends are getting laid off - expect the carriage trade to have a tough time too - and maybe the high end of the housing market.
Breaking news late today Bear Stearns reveal, as expected a massive loss, the first in 80 years:
Bear Stearns said it lost about $854 million, or $6.90 a share, for the fourth quarter, compared with a profit of $563 million, or $4 a share, in the period a year earlier. Analysts surveyed by Bloomberg News had expected a loss of $1.82 a share.
Bear Stearns also said it had written down $1.9 billion of its holdings in mortgages and mortgage-based securities, up from the $1.2 billion it had anticipated last month. As a result of its disastrous results, Bear Stearns said its management will not receive bonuses this year
Maybe not a great thing to gloat - a credit crunch will follow and expand and affect us all.
