Mike Mayo
Photographer: Kholood Eid / Bloomberg
Photographer: Kholood Eid / Bloomberg
The scream of Morgan Stanley’s record-breaking neighborhood is drowned out by the prolonged silence of a nearly $ 1 billion loss in the collapse of the Archegos – and that invites a slap in the face from the most outspoken analyst on Wall Street.
The bank did not disclose its losses until the earnings report, even though colleagues earlier achieved success in what has been one of the most astonishing collapses of funds in two decades. CEO James Gorman said he was pleased with the way the company handled the liquidation and said no sense forced to announce the hit in the middle of a record quarter.
“Would this be material if it’s a bear market?” I don’t see how materiality is defined by whether it’s a bear market or a bear market, “said Mike Mayo, an analyst at Wells Fargo & Co., in an interview. “The example around Archegos was the discussion of the city for a while before the gains. Investors wanted to know. ”
Morgan Stanley exacerbated the $ 911 million inconvenience by failing to disclose the issue earlier and then dismissing the earnings call as repulsive, he said.
“This is not the standard that many investors would like to see,” Mayo said of the delay in publishing a note, adding that it was a rare misstep from Gorman.
Morgan Stanley’s shares were the weakest among major US banks this week, after falling 2.6%, despite its blockbuster results in the first quarter.
A bank representative declined to comment.
Read more: the rapid and even faster growth of $ 20 billion whale
Morgan Stanley built one of the largest exposures to Bill Hwang’s firm and has now emerged as the only major bank in the United States to suffer losses due to the expansion of the family office. The New York-based company was one of Archegos’ first supporters, despite legal contamination with Hwang, who was previously charged with insider trading and in 2012 pleaded guilty to fraud on behalf of his hedge fund predecessor, Tiger Asia Management.
Mayo, a veteran Wall Street analyst, has built a reputation for taking a more combative approach, in stark contrast to his colleagues. He is known for not being afraid to challenge bank executives and play with them on public revenue calls every quarter. He is the author of “Exile on Wall Street: An Analyst’s Struggle to Save the Big Banks From Themselves.”
“In our opinion, regardless of whether there were registrations in shares or the company as a whole seems irrelevant, given a risk management accident that caused this type of loss with a single hedge fund,” he wrote in his note.
“Jamie Dimon is one of the best CEOs of our generation and has taken a major wrong step – apologizing for the losses in The London whale called it a “storm in a teapot” because it was not big in the context of earnings at the company level, “Mayo said of the 2012 incident involving JPMorgan Chase & Co. about losses in the context of firm-level gains, even if it seems significant. ”
The forced liquidation of the Archegos portfolio, which began on March 25, caused the stocks of the bell towers to fall and continue to send shock waves to the capital markets. Blocks related to the company’s holdings hit the market even later this week.
Credit Suisse Group AG was the most affected bank, after announcing a success of almost 5 billion dollars from its exposure to the family office. Japanese Bank Nomura Holdings Inc. he also told shareholders that their business is facing a “significant” loss that could amount to about $ 2 billion. Japan’s largest bank’s Mitsubishi UFJ Financial Group Inc. has also said it will lose $ 270 million.
The disconnect has drawn intense market attention because it happened at such a favorable time for capital markets, according to Mayo.
“It’s like this huge bush of roses with this thorn in the middle,” he said. “Anyone who has stung this thorn really stands out.”
– With the assistance of Felice Maranz