Mike Mayo
Photographer: Kholood Eid / Bloomberg
Photographer: Kholood Eid / Bloomberg
The roar of Morgan Stanley’s record-breaking neighborhood is drowning in its prolonged silence over the loss of nearly $ 1 billion from the collapse of Archegos, and this invites a tongue-in-cheek attack by Wall Street’s most outspoken analyst.
The bank did not disclose its losses until its profit report, even when colleagues previously calculated its success of what has been one of the most impressive fund collapses in more than two decades. CEO James Gorman said he was pleased with how the company handled the liquidation and said no feel forced to announce success in the middle of a fourth record.
“Would it be material if it is a bear market? I don’t see how materiality is defined whether it’s a bullish or bearish market, ”said Mike Mayo, an analyst at Wells Fargo & Co., in an interview.“ The instance surrounding Archegos was the discussion of the city during a period before earnings.Investors wanted to know. “
Morgan Stanley aggravated his $ 911 million setback by not revealing that issue earlier and then dismissed the earnings call error, he said.
“This is not the standard many investors would like to see,” Mayo said of the delay in disclosure in a note, adding that it was a rare misstep by Gorman.
Shares of Morgan Stanley have been the weakest among major U.S. banks this week, after falling 2.6%, despite their big first-quarter hits.
A bank representative declined to comment.
Read more: The rapid rise and the even faster fall of the $ 20 billion whale
Morgan Stanley had amassed one of the largest exposures to Bill Hwang’s firm and has now become the only major U.S. bank to suffer losses due to the extinction of the family office. The New York-based company was one of Archegos ’first sponsors despite Hwang-linked legal contamination, which was previously charged with insider trading and in 2012 pleaded guilty to bank fraud on behalf of its predecessor hedge fund, Tiger Asia Management.
Mayo, a veteran Wall Street analyst, has built a reputation for taking a more combative approach, in contrast to his peers. He is known for not being afraid to challenge bank executives and do justice to them in public benefit calls every quarter. He is the author of “Exile on Wall Street: An Analyst’s Struggle to Save the Big Banks.”
“If there are equity or company-wide records, it seems irrelevant, in our view, given a setback in risk management that caused this type of loss with only one hedge fund,” he wrote on his note.
“Jamie Dimon is one of the top CEOs of our generation and he took a big step wrong, excusing the losses of the London Whale, calling it a “storm in a teapot” because they weren’t big in the context of company-wide profits, “Mayo said of the 2012 incident involving JPMorgan Chase & Co.” You have another strong CEO at James Gorman who seemed ruled out about losses in the context of company-wide profits, even if it seems material. “
The forced liquidation of Archegos ’portfolio, which began on March 25, caused bellwether shares to fall and continues to send shockwaves to capital markets. Blocks linked to the company’s stakes hit the market even this week.
Credit Suisse Group AG was the most affected bank, after announcing a hit of nearly $ 5 billion for its exposure to the family office. Japanese bank Nomura Holdings Inc. it has also informed shareholders that its business is facing a “significant” loss that could reach $ 2 billion. Japan’s largest bank’s securities branch, Mitsubishi UFJ Financial Group Inc., has also said it will record a loss of $ 270 million.
The development has attracted intense market attention because it happened during such a favorable time for capital markets, according to Mayo.
“It’s like that huge rose bush with that thorn in the middle,” he said. “Anyone who has stung that thorn really stands out.”
– With the assistance of Felice Maranz