Home » NEWS » Morgan Stanley's shares fall on probe news

Morgan Stanley's shares fall on probe news

NEW YORK — Morgan Stanley shares dropped in pre-market trading today following a report that the investment bank is facing an investigation into mortgage derivative deals.

Federal prosecutors are investigating whether Morgan Stanley misled investors about its role in a pair of $200 million derivatives whose performance was tied to mortgage-backed securities, according to a report in The Wall Street Journal. The newspaper said Morgan Stanley sometimes bet against the success of the derivatives, which were underwritten and marketed to investors by Citigroup Inc. and UBS AG.

Shares of Morgan Stanley fell $1.29, or 4.5 percent, to $27.09 in pre-opening trading.

A spokesman from Morgan Stanley said the bank has not been contacted by the Justice Department about the deals in question and has no knowledge of an ongoing investigation.

The spokesman said the bank has not received a Wells Notice from the Securities and Exchange Commission. A Wells Notice informs a company that the SEC’s staff is recommending bringing charges against the company.

Speaking in Tokyo today, Morgan Stanley CEO James Gorman said, “We have no reason to believe there is any substance behind any supposed investigation.”

The reported investigation comes as the Securities and Exchange Commission is charging Morgan Stanley competitor Goldman Sachs Group Inc. with fraud over that bank’s packaging of mortgage securities. Goldman Sachs is also facing a separate criminal investigation into whether it misled investors about those securities. Goldman has denied the allegations and plans to defend itself against the charges.

Federal regulators have been stepping up their reviews of whether Wall Street banks misled investors when selling derivatives and other risky securities that have been largely blamed for the credit crisis.

Many of the securities were tied to the performance of subprime mortgages. As mortgages increasingly defaulted during the recession, the value of many of the securities collapsed costing investors and the banks billions of dollars.

Morgan Stanley itself lost billions of dollars during the recession and credit crisis on its investments in the mortgage-related securities, including deals tied to commercial real estate loans.

The investigations into Morgan Stanley and Goldman Sachs also come as Congress discusses a major overhaul of financial regulations that could end up restricting trading at Wall Street banks.

BEFORE YOU GO…

… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.

If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.

Click for more info

About Megan Wright

Leave a Reply

Your email address will not be published. Required fields are marked *

*