SEARCH

Google

2007. december 1., szombat

Morgan Stanley may write off more after Cruz ouster

The ouster of Zoe Cruz, one of Wall Street's most powerful female executives, as Morgan Stanley's co-president after a $3.7 billion mortgage loss has raised questions about how big the ultimate write-down will be -- and how much investors will notice.
Cruz's unexpected departure on Thursday, after a quarter century at Morgan Stanley, eliminated perhaps the leading candidate to succeed John Mack as chief executive.
The 52-year-old Cruz joined a conga line of banking executives to lose their jobs after more than $50 billion of mortgage losses industry wide. These include the chief executives of Merrill Lynch & Co and Citigroup Inc , Stanley O'Neal and Charles Prince.
Cruz oversaw a business that in September and October generated the $3.7 billion pretax loss, reducing overall net income by $2.5 billion. Many analysts have said losses may have grown in November.
As Morgan Stanley's fiscal year ended Friday, investors worried that more bad news might come in its earnings report, expected the week of December 17.
"Will there be another shoe to drop?" said Peter Kovalski, who helps invest $12 billion at Alpine Woods Investments in Purchase, New York, which owns Morgan Stanley shares. "I worry that there could be more losses coming from her area, and maybe this was the last straw. Close to year end, before bonuses have been paid, usually people don't step aside."
The fourth-quarter write-down at Morgan Stanley might ultimately total $5.7 billion, CNBC television said on Friday. Morgan Stanley shares edged higher after that projection, even though the amount would wipe out about half a year of profit.
Spokesman Mark Lake declined to comment on the report, but said the $3.7 billion figure could change.That mirrored comments on November 7 by Chief Financial Officer Colm Kelleher, who said it may take "several quarters" for the market to return to normal.
Michael Holland, a money manager at Holland & Co., said: "With Stan and Chuck, the situation was even more dire. From the fact that Mack hasn't been fired, I infer that Morgan Stanley's write-downs will not be nearly as painful."
'COSTLY MISTAKE'
According to Patricia Beard's book "Blue Blood & Mutiny: The Fight for the Soul of Morgan Stanley," Cruz had in 2005 clashed with Vikram Pandit, then her boss and now Citigroup's head of investment banking and trading, over trading risk.
Cruz, who then led fixed income, commodities and foreign exchange, claimed Pandit should let her take more risk, while Pandit believed Cruz should take responsibility if she were dissatisfied with her performance, according to the book.
After Mack returned in June 2005, Cruz got her wish. Profit soared, and Mack praised Cruz by name at Morgan Stanley's April 10, 2007, annual meeting for managing "a tremendous amount of risk in a very smart and disciplined way."
But April's smart discipline morphed into a "costly mistake" by November, according to Brad Hintz, a Sanford C. Bernstein & Co analyst who expects a $4.9 billion write-down.
Referring to Goldman Sachs Group Inc , which has appeared far more successful than rivals in making aggressive trading bets, Hintz wrote: "No stockholder value has been generated from the decision to become more Goldman Sachs-like."
Some of this year's write-downs soothed investors who were betting on larger ones, including the $3.7 billion at Morgan Stanley and a $3 billion write-down announced November 13 by Bank of America Corp .Conversely, write-downs of $8.4 billion at Merrill Lynch and a possible $11 billion at Citigroup proved unnerving. Goldman Sachs also reports results in mid-December, as do Bear Stearns Cos and Lehman Brothers Holdings Inc .
"Things are hard to predict," Holland said. "Auditors are coming in for the fourth quarter and full-year results, and, knowing auditors, there's more writing down to be done."