Archive for the “Morgan Stanley” Category

Hoping to permanently shatter the “Greed is Good” line made famous by fictitious corporate raider Gordon Gekko in the movie Wall Street, Andy Stern, president of the Service Employees International Union (SEIU), has sent a scathing letter to 29 financial services firms over executive bonuses tied to inflated profits on derivatives and other investments that ultimately turned out to be worthless. Stern called upon the companies, which included American International Group (AIG), Citigroup, Morgan Stanley, and JP Morgan Chase to either pay back the bonuses immediately or get prepared to face a slew of lawsuits.

The SEIU’s pension fund, known as the SEIU Master Trust, wants the firms’ boards of directors to review more than $5 billion in bonuses and stock option awards that were given to their companies’ top five executives since 2005.

In addition, the pension fund is demanding the companies overhaul their executive compensation practices.

 “The collective choices of top executives to reward themselves despite their failure to deliver a profit on their investments negatively impacted our pension fund and left our economy in shambles,” said SEIU’s Stern in an April 20 article by Bloomberg. “It’s as if these guys got a windfall payoff for betting the family’s savings on the wrong horse.”

All of the companies in question have come under fire recently over executive compensation issues. Leading the pack is financially troubled AIG, which has been bailed out by the U.S. government multiple times and received more than $185 billion in funds. Despite the taxpayer-funded rescue, as well as a $62 billion fourth-quarter loss, the insurer turned over $165 million in executive bonuses in 2008.

Meanwhile, pension funds investing in AIG and in other firms that awarded over-the-top bonuses to executives while their companies struggled financially have lost billions of dollars.

News of the AIG bonuses led Congress to create legislation in March that would establish a 90% tax on bonuses at any company receiving $5 billion in government aid.

The SEIU Master Trust held investments in all 29 financial services firms that received a letter from Stern.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Promises of unrealistic returns and unsuitable investment strategies ultimately will cost Morgan Stanley $7.2 million. The Financial Industry Regulatory Authority (FINRA) announced the multimillion-dollar decision on March 25,when it ruled in favor of 90 Rochester, New York-area retirees from Eastman Kodak and Xerox Corp. who said the brokerage firm had encouraged them to take early retirement and open accounts that ultimately wiped out much of their life savings. 

FINRA’s decision includes a $3 million fine, plus $4.2 million in restitution. In addition, the regulatory agency permanently barred former Morgan Stanley broker Michael Kazacos from doing business in the securities industry, as well as charged former Morgan Stanley broker David Isabella with misconduct. Ira. S. Miller, who managed Isabella and Kazacos, was suspended from acting in a principal capacity for one year and fined $50,000.  

According to a statement by FINRA, from 1998 through 2003, Kazacos was able to persuade dozens of Kodak and Xerox retirees and potential retirees to invest their retirement assets with him by promising 10% annual returns and the ability for investors to satisfy their income needs by withdrawing a similar percentage for living expenses each year without reducing their principal. Kazacos’ statements not only encouraged individuals to move their retirement accounts to Morgan Stanley, but also caused some to retire sooner than they might have otherwise. 

FINRA also found that once Kazacos did begin to service the retirement accounts, he implemented unsuitable investment strategies that exposed investors to greater risks, especially in a market downturn. As a result, the principal in many accounts was significantly reduced. Specifically, Kazacos put many clients into mutual funds, with an unsuitably high concentration in equity funds. The broker also recommended unsuitable variable annuity transactions, according to FINRA’s formal disciplinary complaint. 

During the period that the misconduct allegedly occurred, Kazacos and Isabella generated about $15.4 million in gross commissions from soliciting investments with Morgan Stanley, FINRA said. 

To read FINRA’s press release on the Morgan Stanley ruling, go to: http://www.finra.org/Newsroom/NewsReleases/2009/P118270. 

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Investors with Raymond James Financial are still holding out for answers from the St. Petersburg-based financial services firm regarding their illiquid auction-rate securities. So far, all they’ve gotten is a four-page letter dated Jan. 2 from Thomas James, chairman and chief executive officer, in which he “apologizes” for investors’ dilemma but says the company cannot repurchase the securities it sold because it doesn’t have enough capital on hand.

The message is of little comfort to clients of Raymond James Financial who currently own about $1 billion in outstanding auction-rate bonds and auction-rate preferred securities. It’s the same scenario they’ve faced since February 2008, when the $330 billion auction-rate securities market collapsed and left hundreds of thousands of investors unable to sell securities that had been touted as cash equivalents.

Facing pressure from state and federal regulators, a number of financial firms such as UBS, Wachovia, Merrill Lynch, Morgan Stanley and others announced plans to repurchase the illiquid securities from their clients. Many already have completed their buyback programs. Clients of Raymond James Financial, however, have been left in a holding pattern.

As it turns out, they may be in for a long wait. Any potential relief is likely tied to Raymond James Financial’s ability to secure a bank loan and buy back the securities after it becomes a bank-holding company. But that process will not be completed until next summer.

Meanwhile, Raymond James Financial remains under investigation by the Securities and Exchange Commission (SEC), the New York Attorney General and the Florida Office of Financial Regulation for its handling of auction-rate securities.

The company’s stock also has taken a beating from the firm’s inability to make good on its customers’ auction-rate securities. As of Dec. 31, 2008, shares of Raymond James Financial had fallen more than 40%.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

After posting an $8.9 billion fourth-quarter loss - nearly double what analysts initially predicted - New York-based Citigroup is resorting to drastic measures as it tries to raise sorely needed capital. The banking giant will split into two separate entities: Citicorp and Citi Holdings.

Citicorp will focus on traditional banking, with Citi Holdings to include the bank’s asset management and consumer finance units, as well as some $300 billion of Citigroup’s most risky assets. Citi Holdings also will oversee Citigroup’s 49% stake in the recently announced venture with Morgan Stanley.

By splitting in two, CEO Vikram Pandit believes Citigroup will be able to free up its capital, while at the same time unload the more troubled assets that have continued to plague the bank for the past year.

Citigroup’s fourth-quarter loss also included $7.78 billion in write-downs on subprime mortgages, collateralized debt obligations and structured investment vehicles. In total, Citigroup’s losses have surpassed the $90 billion mark over the past 15 months.

During the Jan. 16 conference call with analysts, Pandit also noted the likelihood of future layoffs. The bank, which already reduced its workforce by 52,000 in 2008, is expected to let go another 23,000 employees by the end of December 2009.

Citigroup’s ongoing financial issues are reflected in its share price, which plunged nearly 90% in 2008. In October, the bank was forced to accept an emergency rescue of $45 billion from the U.S. Treasury.

Meanwhile, news of Pandit’s restructuring plans did little to improve investor confidence. Citigroup stock was trading at $3.50 on Jan. 16. Two years ago on that day, the stock price was $54.39.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Saddled with extensive damage from the ongoing financial crisis, a loss of investor confidence, and massive job lay-offs, New York-based Citigroup is reportedly in talks to sell its prized Smith Barney brokerage unit to Morgan Stanley.

According to reports in the Wall Street Journal and the New York Times, the deal would be structured as a joint venture and entail payment from Morgan Stanley for an undisclosed sum that would give Morgan a larger stake in the transaction.

News of a potential deal appeared shortly after Citigroup announced that Robert Rubin, former U.S. Treasury secretary under Bill Clinton, had resigned from his post as senior adviser and director of the bank. Rubin’s resignation came after ongoing criticism for his role in encouraging the bank to increase its trading of high-risk mortgage-related securities - a move that many say led to Citigroup’s current financial troubles.

In the past six months, Citigroup has been rocked with staggering financial losses. Despite a second, $20 billion injection of capital from the government’s $700 billion bailout, along with federal guarantees to cover more than $300 billion of the bank’s exposure to toxic mortgage-backed securities, Citigroup continued to experience problems. With losses totaling more than $20 billion, its stock value responded by plunging nearly 80% in 2008.

Faced with eroding investor confidence and a stock price that continued to slide downward, CEO Vikram Pandit reportedly initiated private talks in November with his top executive team regarding the sale of all or parts of the financial services company.

A joint venture between Citigroup and Morgan Stanley would reconnect Pandit with his former employer. Pandit abruptly left Morgan Stanley in 2005 after being passed over for a promotion. He had been with the company for 22 years. After leaving Morgan Stanley, Pandit founded his own hedge fund firm, Old Lane, and later sold the fund for $800 million to Citigroup. Pandit had been on the job with Citigroup for only five months before taking the reins of the company as CEO. His predecessor had been Charles Prince, who resigned following shockingly large losses connected to investments in subprime mortgages.

Meanwhile, an official deal between Citigroup and Morgan Stanley could be announced as early as next week.

Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

For thousands of investors in Hong Kong and Singapore - many of them retirees - the name of Lehman Brothers probably wasn’t a topic of daily discussion. That is until now. Because of investments linked to the bankrupt brokerage, investors are seeing their life savings disappear overnight.

The problem investments are two structured finance products called Pinnacle Notes Series 9 and 10, and are part of a Pinnacle Notes Series of credit-linked notes. Series 9 and 10 notes were issued by Pinnacle Performance and arranged by Morgan Stanley Asia.

As of Nov. 14, the two notes were forced into a mandatory redemption because of their connection to toxic collateralized debt obligations (CDOs) and financially troubled companies like Lehman Brothers Holdings, Freddie Mac and Fannie Mae.

Now, New York-based Morgan Stanley is giving investors the news they do not want to hear: They can expect to lose their entire original investment in the Pinnacle Notes Series 9 and 10.

Rumors of the eminent collapse of the Pinnacle Notes Series 9 and 10 have been circulating for the past month, fueled in part by the failures of other structured products like DBS High Notes 5. Like the Pinnacle Notes Series 9 and 10, the DBS High Notes also were linked to Lehman Brothers. When Lehman filed for bankruptcy protection on Sept. 15, the notes became essentially worthless.

According to information posted on Morgan Stanley’s Web site, Standard & Poor’s had previously slashed the ratings of the underlying assets in the Pinnacle Series 9 and 10 from AA to CCC-, or junk status.

The two series of the Pinnacle Notes were sold solely in Singapore through five distributors: brokers DMG & Partners, Kim Eng Securities, OCBC Securities and UOB Kay Hian and lender Hong Leong Finance. Pinnacle Performance, the issuer of the Pinnacle Notes Series 9 and 10, is a special purpose company incorporated in the Cayman Islands.

Like many of the stories coming forth from investors burned recently by structured finance products, investors in the Pinnacle Notes Series 9 and 10 say they were unaware of the high-level of risk involved. They put their trust in the financial institutions that sold them the securities. Now, like their investments, that trust is shattered.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

First there were auction-rate securities, then collateral debt obligations (CDOs). Now, credit-default swaps are making news. On Oct. 20, U.S. federal prosecutors and New York Attorney General Andrew Cuomo jointly announced that their two agencies had launched an investigation into the $58 trillion credit-default swaps market and whether Wall Street investment firms manipulated the instruments for their own financial gain.

Among other things, regulators are looking to determine if traders used the credit swaps to artificially lower share prices of various financial companies, which then resulted in large sell-offs and a downward spiral of company stock.

According to an Oct. 20 article in the New York Times, the New York Attorney General’s office issued subpoenas to stock exchanges, investment firms and three companies involved in processing trades in swaps and stocks. The firms are: the Depository Trust Clearing Corporation, Markit and Bloomberg.

Credit-default swaps have been the source of problems for several high-profile companies recently, including Bear Stearns, Lehman Brothers, American International Group (AIG), Morgan Stanley and others.

A credit-default swap is a contract for insurance on certain types of debt. Buyers of credit swaps pay a fee in exchange for having their losses covered in the event the debt defaults. The problem is the credit-default swap market itself. It is unregulated. That means contracts are regularly traded without any oversight to ensure buyers actually can cover losses.

That may be changing in the future, however. Joint investigations between federal prosecutors and the New York attorney general are a rarity. That fact alone suggests the investigation into credit-default swaps is going to be a big one - and that fundamental changes involving transparency and oversight could be coming sooner rather than later.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

Ill-fated financing arrangements concocted back in 2002 by JPMorgan Chase and other Wall Street banks for a sewer project in Jefferson County, Alabama, are causing havoc once again - this time for school districts in Pennsylvania.

As reported Oct. 17 on Bloomberg.com, the Securities and Exchange Commission (SEC) is reviewing records from the Bethlehem Area School District in Pennsylvania over interest-rate swaps that the district entered into with JPMorgan and Morgan Stanley.

As in the case of Jefferson County, Alabama - which continues to teeter on the brink of bankruptcy as a result of the flawed financing deals put together by JP Morgan and others - the SEC inquiry in Pennsylvania is part of a larger investigation concerning at least $8 million in fees that Bethlehem and other school districts paid to various Wall Street banks that sold the interest-rate swaps.

Interest-rate swaps are tied to variable interest rates. The swap itself is much like a bet between the purchaser and a bank: If interest rates remain favorable, the purchaser is the winner. If market conditions create an unfavorable interest rate environment, the bank that sold the swap receives higher payments from the purchaser.

In the case of the Bethlehem Area School District, the bank is now winning. In September, the district’s weekly debt costs increased by $250,000 - nearly $1 million a month.

Just like in Jefferson Country, Alabama, Bethlehem school board members say they failed to fully understand the ramifications of interest-rate swaps at the time they approved the deal with JP Morgan and others. Only now do they realize their mistake, they say, and just how risky and speculative the derivatives market can be.

Unfortunately, hindsight is 20/20. Now, it’s left to taxpayers to pick up the pieces and pay for the error in judgment by school board members of the Bethlehem Area School District. Students, too, are going to be affected by those bad decisions. As debt costs continue to mount for the district, tough choices will need to be made, including cutbacks to educational programs and reduced services in schools.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses. 

There will be no more curtain calls for Wall Street. On Sunday night, the era of investment banking came to a stunning and dramatic conclusion as investment icons Goldman Sachs and Morgan Stanley - Wall Street’s two remaining independent investment firms - agreed to become bank holding companies regulated by the Federal Reserve.

Abandoning their investment banking status means Goldman and Morgan Stanley will no longer rely on leveraged money and instead have access to more stable funding avenues in the future, including bank deposits from retail customers and the Federal Reserve’s Discount Lending Window. It also means they will face much stricter oversight and regulation by the federal government.

Prior to announcing the changeover, Goldman Sachs and Morgan Stanley had been submerged with massive losses on subprime mortgages and other risky real estate holdings. Shares in the two companies have lost nearly half of their value this year.

Last week’s chaos in the financial markets only added to Goldman and Morgan Stanley’s troubles. After 158 years, Lehman Brothers Holdings was forced to file for bankruptcy; Merrill Lynch, fearing a similar fate for its future, was purchased by Bank of America; and the federal government announced an $88 billion bailout of insurance giant American International Group (AIG).

Then, in a meeting that began at 9 p.m. on a Sunday night, the Federal Reserve and the U.S. Treasury laid out the most sweeping - and expensive - rescue plan for the country’s financial system since the Great Depression. The centerpiece of the plan focuses on cleaning up the balance sheets of financial institutions with the U.S. Treasury taking on hundreds of billions of dollars in toxic mortgages. The price tag to taxpayers could be as high as $1 trillion.

U.S. Treasury Secretary Henry Paulson is urging Congress to pass the bailout plan this week.

Meanwhile, the immediate future of Goldman Sachs and Morgan Stanley is a bit brighter today, as the move to shed their investment bank status lets them steer clear of the road to disaster that overtook many of their counterparts recently - including Bear Stearns, Lehman Brothers and Merrill Lynch. Goldman and Morgan Stanley appear to be safe - for now, anyway.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

At the beginning of 2008, five independent investment banks were doing business on Wall Street. Two remain: Morgan Stanley and Goldman Sachs. Now the question is for how long?

With the nation’s financial crisis reaching a fever pitch and markets here and abroad reeling from losses on subprime-related write downs and the credit crunch, it’s become a survival of the fittest for Wall Street. Now, financially troubled Washington Mutual, the country’s biggest savings and loan, is said to be looking for a buyer, while Morgan Stanley, the No. 2 biggest independent securities firm in the United States, reportedly may merge with Wachovia Corporation after its shares plummeted more than 40% amid news of Lehman Brothers’ bankruptcy.

The latest upheaval in the financial world underscores the severity of the credit crisis - and investors’ fears that more is to come. In the course of a week, the nation’s oldest investment firm, 158-year-old Lehman Brothers, goes bankrupt with debts totaling $613 billion. Merrill Lynch, fearful it might suffer a similar fate, is acquired by Bank of America. The Dow Jones Industrial Average loses more 500 points, its biggest drop since the Sept. 11 terrorist attacks seven years ago. Then, the U.S. Treasury Department, which previously said it would no longer put taxpayers’ money at risk by bailing out troubled companies, announces an $85 billion rescue for American International Group (AIG).

Even more unsettling to investors is the fact that some money market funds - a $3.5 trillion sector and once considered to be safe as cash - are losing money. In a rare “break the buck” scenario, the Reserve Primary Fund revealed on Sept. 16 that it had reduced the value of customers’ shares to below $1 to 97 cents.

And now reports surface that Seattle-based Washington Mutual is aggressively looking for a deal to save itself. WaMu’s biggest shareholder, TPG Inc., announced yesterday that it is willing to accept a dilution of its stake in the bank if it is sold. Both Wells Fargo and Citigroup have been rumored to be potential buyers.

Stung by heavy losses from adjustable-rate mortgages, Washington Mutual has seen its shares fall to their lowest levels in nearly two decades this year. Earlier in the month, Kerry Killinger, the bank’s CEO, was fired and replaced by Alan Fishman. Making matters even worse, the bank was cited by the Office of Thrift Supervision (OTS) for poor risk management practices.

Meanwhile, Morgan Stanley is dealing with problems of its own. Its shares dropped more than 40% on Sept. 18, amid concerns that it was the next investment bank to close up shop. CNBC first reported that the firm was considering a merger with Wachovia, the fourth-largest bank in the United States, on Wednesday night.

Stay tuned. The events of Wall Street are changing by the hour.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.