Morgan Stanley

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Company Profile
Company Name Morgan Stanley
CEO Name James Gorman
CEO Compensation $12,981,856
CEO Retirement Assets $19,006,029
Annual Company Revenue $32,403,000,000
Federal Lobbying/Political Donations ('09-'12*) $11,250,000
Click here for sources.
2011 data unless otherwise noted.
©2013 Center for Media and Democracy

Morgan Stanley was founded in 1935 and is the sixth largest bank in the US in terms of assets [1] The firm posted $32.4 billion of total revenue in 2011. [2]

Morgan Stanley provides investment banking, securities, investment management and wealth management services. The firm has offices in 42 countries. [3] Former executives of J.P. Morgan & Company originally founded Morgan Stanley. The Glass Steagall Act of 1933 required banks to engage in commercial or investment banking, but not both. To conform with this legislation, in 1935 J.P. Morgan & Company spun off Morgan Stanley as an investment bank.[4] During the 2008 financial crisis, Morgan Stanley received quick regulatory approval from the Federal Reserve to change its status from an investment bank to a bank holding company, thereby gaining access to low-interest loans from the Fed.[5] In January 2009 Morgan Stanley bought a majority stake in the brokerage firm Smith Barney.

Ties to Pete Peterson's "Fix the Debt"

The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Morgan Stanley is part of the Campaign to Fix the Debt as of February 2013.

This article is part of the Center for Media and Democracy's investigation of Pete Peterson's Campaign to "Fix the Debt." Please visit our main SourceWatch page on Fix the Debt.

About Fix the Debt
The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Through a special report and new interactive wiki resource, the Center for Media and Democracy -- in partnership with the Nation magazine -- exposes the funding, the leaders, the partner groups, and the phony state "chapters" of this astroturf supergroup. Learn more at PetersonPyramid.org and in the Nation magazine.

Financial crisis and the bailout

Role in the financial crisis

Excessive Risk-taking

Despite its long history as the investment banker for major corporations, in September 2008 Morgan Stanley was on the verge of collapse. It had written off $15.7 billion in bad investments and was running out of cash. The firm was heavily involved in packaging and selling subprime mortgages. John Mack, Morgan Stanley’s CEO up to 2010, told the President’s Financial Crisis Inquiry Commission that “We did eat our own cooking, and we choked on it…” [6]

According to Andrew Ross Sorkin, author of Too Big to Fail, Morgan Stanley was the next big bank expected to fail after the bankruptcy of Lehman Bros. [7] Concerned about the possibility of another major bank failure, Treasury Secretary Henry Paulson suggested that Morgan Stanley sell itself to JP Morgan for $1. John Mack refused, arguing he could save his bank by selling a stake to Japanese bank Mitsubishi.[8]

Morgan Stanley had left itself vulnerable through massive borrowing and high risk investments. By 2007, Morgan Stanley had reached a leverage ratio of thirty-three to one, meaning it had only one dollar in capital for every thirty-three it had borrowed. Morgan Stanley’s leverage at times exceeded even that of Lehman Bros.[9]

The 2008 financial crisis has been described as “a result of a conscious SEC decision” to deregulate investment bank leverage.[10] In 2004, after intense lobbying by Henry Paulson when he was CEO of Goldman Sachs, the Securities and Exchange Commission exempted the five largest US investment banks from the regulation limiting debt to net capital.

According to Wall Street Journal reporter Scott Patterson, “The banks had asked for an exemption for their brokerage units from a regulation that limited the amount of debt they could hold on their balance sheets. The rule required banks to hold a large reserve of cash as a cushion against big losses on those holdings. By loosening up those so-called capital reserve requirements, the banks could become more aggressive and deploy the extra cash in other, more lucrative areas – such as mortgage-backed securities and derivatives.” The banks were allowed to use their own calculations - based on what were supposed to be sophisticated models - of how much risk they could safely handle. An SEC commissioner who participated in the decision said “I keep my fingers crossed for the future.”[11]

John Mack testified in January 2010 to the President’s Financial Crisis Inquiry Commission that “One of the clearest lessons from the 2008 crisis was that many firms simply carried too much leverage and took too much risk.” He did not acknowledge that Morgan Stanley had done this and instead highlighted steps the firm had taken to weather the financial storm that broke in September 2008. [12] However, the Congressional Oversight Panel on TARP published a report that showed that even as late as the first quarter of 2009, more of Morgan Stanley assets – 11% - were categorized as “Level 3” than those of any other of the 19 banks examined. The Panel said high percentages of Level 3 assets are revealing this is the category where toxic assets are most likely to found on a bank’s balance sheet.[13]

The report, “Sold Out: How Wall Street and Washington Betrayed America”, explains how excessive investment bank leverage contributed to the financial crisis: “This superleverage not only made the investment banks more vulnerable when the housing bubble popped, it enabled the banks to create a more tangled mess of derivative investments — so that their individual failures, or the potential of failure, became systemic crises.”[14]

Compensation and Excessive Risk

In his book, 'Infectious Greed: How Deceit and Risk Corrupted the Financial Markets', former Morgan Stanley trader Frank Partnoy argues that “the structure of Wall Street compensation seemed to encourage traders to take excessive risks, or even to defraud their firms.” Employees who gambled on risky investments that achieved windfall profits in the short term saw their bonuses increase exponentially. On the flip side, if their bets resulted in spectacular losses for a bank’s clients, there were few consequences.[15]

An investigation by New York Attorney General Andrew Cuomo into executive pay on Wall Street revealed that in 2008, when Morgan Stanley received $10 billon in TARP funding, the firm had a net income of $1.7 billion but paid out $4.475 billion in bonuses.[16]

Morgan Stanley’s internal culture encouraged extremely aggressive risk taking in exchange for high rewards. Frank Partnoy has described Morgan Stanley as having a “military approach and killer attitude” [17]. He likened the firm to a “savage cult” [18] where salespeople boasted about “ripping the faces off” their clients. [19].

Competition between hedge funds and investment banks like Morgan Stanley also resulted in extreme levels of compensation and risk taking. According to Wall Street Journal reporter Scott Patterson, investment banks became involved “in a life and death struggle to keep talented traders from jumping ship and starting hedge funds…” Patterson observed that the only way for investment banks to compete with hedge funds “would be to offer their best and brightest massive paychecks, and open the gates wide on risk taking and leverage. In short order, Wall Street’s banks morphed into massive, risk-hungry hedge funds, Goldman leading the way and Morgan close behind.” [20]

One of Morgan Stanley’s own internal proprietary trading units, Process Driven Trading, earned about one quarter of all the firm’s net income until the financial meltdown. In the decade up to 2006, this unit made $4 billion and paid the small group of traders staffing it $1 billion, exceeding the pay of Morgan Stanley’s chief executives. According to Scott Patterson, few in the firm knew what this unit actually did, and for CEO John Mack all that mattered was that it was profitable most of the time. [21]

In 2007 the quantitative models used by PDT failed, with spectacular losses. For example, on one day alone PDT lost $300 million.[22] A PDT trader, commenting on the huge losses suffered during the crisis from computerized trading, pointed out a basic flaw in the system: “The types of volatility we were seeing had no historical basis. If your model is based on historical patterns and you’re seeing something you’ve never seen before, you can’t expect your model to perform.” [23].

Largest Single Trading Loss in Wall Street History

The ability of individuals within Morgan Stanley to gamble huge amounts of money is illustrated by the losses of one of the firm’s hedge funds, Global Proprietary Credit. Morgan Stanley Chair John Mack revealed to the President’s Financial Crisis Inquiry Commission that his firm had lost billions in the residential mortgage-backed securities market, and “$7.8 billion of these losses related to a proprietary trading position in one part of the Firm.”[24]

The unit of Morgan Stanley that lost the most money in subprime mortgage investments was its hedge fund, Global Proprietary Credit, headed by Howie Hubler. In his book, The Big Short: Inside the Doomsday Machine, Michael Lewis explained the significance of Hubler’s bad bet on subprime mortage-backed securities, which resulted in the single largest proprietary trading loss in Wall Street history.[25] Lewis wrote that “Never had there been such a clear expression of the delusion of the elite Wall Street bond trader and, by extension, the entire subprime mortgage bond market: Between September 2006 and January 2007, the highest-status bond trader inside Morgan Stanley had, for all practical purposes, purchased $16 billion in triple-A-rated CDO’s, composed entirely of triple-B-rated subprime mortgage bonds, which became valueless when the underlying pools of subprime loans experienced losses of roughly 8 percent.”[26]

CEO John Mack was asked on a December 2007 conference call with investors about the enormous losses Hubler had incurred. An analyst from Goldman Sachs questioned how Morgan Stanley could have allowed one desk to lose so much money, given that the firm was supposed to have risk limits and position limits. Mack responded by saying “That’s a wrong question.”[27]

Author Michael Lewis describes Howie Hubler as “headstrong and bullying” and very aggressive to those who attempted to question his trades.[28] Despite the huge loss he had generated for Morgan Stanley, Hubler was allowed to resign in October 2007 and take with him tens of millions in back pay. Hubler subsequently established his own firm giving advice to mortgage lenders.[29]

Bankrolling the subprime industry

Morgan Stanley became involved in the subprime mortgage business as a provider of subprime mortgages through one its subsidiaries and as a lender to the largest subprime mortgage firms. The firm was not a major player in this business until John Mack became CEO in 2005. Mack was committed to a more aggressive investment strategy that included increased involvement in the mortgage market.[30] He committed the firm to doubling its revenues in five years and to take bigger, bolder gambles.[31]

Under John Mack’s leadership, Morgan Stanley made what was described as “a poorly timed push into the mortgage market at the end of 2006.” [32] The bank bought Saxon Capital, dubbed the “King of Subprime”, for $706 million in December 2006. This purchase was made so that Morgan Stanley “could gain access to subprime mortgages and repackage them into complex investment vehicles."[33] Saxon Capital’s stated business strategy was to expand its portfolio of non-conforming loans.[34]

By the end of 2006, problems such as bad underwriting standards and predatory loans had become apparent in subprime mortgages, yet these problems did not deter Morgan Stanley from making a major foray into the business. Bethany McLean and Joe Nocera, authors of All the Devils Are Here: The Hidden History of the Financial Crisis, have observed that Wall Street had no interest in seeing the risky and fraudulent practices that plagued the subprime mortgage business corrected because the riskier the loans, the higher were bank profits on mortgage-related investments. Even borrowers who qualified for cheaper, traditional loans were sometimes pushed into a high-fee subprime product.[35]

According to McLean and Nocera, “Wall Street needed subprime mortgages that it could package into securitized bonds. And investors around the world wanted Wall Street’s mortgage products because they offered high yields in a low-yield environment. Merrill Lynch, Morgan Stanley, UBS, Deutsche Bank, even Goldman Sachs … moved heavily into the business…Mortgage originators sought to supply the riskier mortgages Wall Street craved – no matter what.”[36] In this sense, the subprime fiasco was not so much driven by demand from low income home buyers for alternative home financing but by the demand from firms like Morgan Stanley for the raw material they needed to create high yield financial products.

Morgan Stanley provided significant backing to New Century, which had become the second largest US subprime lender by 2006.[37] New Century had a $3 billion line of credit with Morgan Stanley and borrowed $1.5 billion from the bank. New Century used this money to fund subprime loans, which Morgan Stanley would then package and sell to institutional investors like pension funds. The credit extended by firms like Morgan Stanley has been described as “the lifeblood of subprime mortgage companies,[38]

In his expose of Wall Street, former Morgan Stanley trader Frank Parnoy explained how, through their demand for mortgages to package into CDO’s, banks made the subprime mortgage crisis worse: “When mortgage lenders such as New Century Financial Corporation and Countrywide Financial saw the insatiable demand for risky loans, they began making too-good-to-be-true loan offers to anyone they could find. Many people have criticized these lenders for unscrupulous practices. Others have criticized borrowers for taking loans they couldn’t possibly repay. Much of that criticism is fair, but it ignores the big picture. The driving force behind the explosion of subprime mortgage lending in the U.S. was neither lenders nor borrowers. It was the arrangers of CDOs. They were the ones supplying the cocaine. The lenders and borrowers were just mice pushing the button.”[39]

Morgan Stanley created financial derivatives based on subprime mortgages that it bet would decline in value. The Wall Street Journal reported in May 2010 that federal prosecutors were looking into whether Morgan Stanley had misled investors about mortgage-related investments it designed and bet against. Two deals in particular, called the "Dead Presidents" deals, were structured in a way that magnified losses if the value of mortgage bonds declined. The Wall Street Journal stated: “Morgan Stanley traders took the more profitable, bearish side of these transactions, according to traders. These positions weren't disclosed in some deals. It couldn't be determined how much money Morgan Stanley made with these wagers.” Morgan Stanley CEO James Gorman said he had no knowledge of a Justice Department investigation into these deals.[40]

Massachusett’s Case Against Morgan Stanley

Morgan Stanley was criticized by the Massachusetts’ Attorney General for knowing New Century’s subprime lending practices were unsound, yet continuing to fund and securitize New Century’s loans that the Attorney General claimed were “designed to fail.” The bank funded New Century into 2007 even when other banks were refusing to lend to it and New Century was on the verge of bankruptcy. In March 2007 Morgan Stanley gave yet another loan to New Century that allowed the ailing firm to make one last round of subprime lending. At one point Morgan Stanley had refused to fund New Century mortgages that were made with no documentation on the borrowers’ credit worthiness, but relented after New Century threatened to take its business elsewhere. Through 2006 and into 2007, Morgan Stanley sold subprime investments to the Massachusetts Pension Reserves Investment Trust and the Massachusetts Municipal Depository Trust, resulting in significant losses to these entities.[41]

Morgan Stanley paid $102 million in 2010 to settle the case taken against it by Massachusetts Attorney General Martha Coakley. In a media statement announcing this settlement, [42] Coakley said the focus of the settlement and her office’s investigation was “Morgan Stanley’s role in facilitating predatory lending by New Century…” Coakley’s investigation was not only into the predatory lenders operating in Massachusetts but as well into the “investment banks who played a critical role in enabling the unsound lending model to last for so long here.” In addition to paying $102 million, Morgan Stanley agreed to change its practices to avoid what Coakley termed “facilitation of unfair lending.” Morgan Stanley agreed not to make unfair subprime loans itself and to ensure it did not give financial backing to others to make these loans.

Law Suits over Funding of New Century and Countrywide

Morgan Stanley acted as the underwriter for the stock of both New Century and another major subprime lender, Countrywide Financial, which was the largest originator of subprime mortgages in the US before the financial crisis. Morgan Stanley was sued over its role in underwriting these companies’ stocks.[43]

Securitizing Subprime Loans

According to documents filed by the City of Cleveland in a complaint against Morgan Stanley and other financial firms, between 2002 and 2006 Morgan Stanley issued or underwrote more than $227.5 billion in securities backed by subprime mortgages. This amount exceeded that of other major securitizers of subprime mortgages such as Citigroup, Bear Stearns, and Merrill Lynch. [44]

The City of Cleveland’s complaint against Morgan Stanley argued that the bank helped fuel the subprime mortgage boom with disastrous impacts on the city. Financial firms bought sub-prime mortgages because they provided higher rates of return and sold them off as securities. These securities were often bundled into complicated investments called “Collateralized Debt Obligations”, or CDOs, The CDO business paid very high fees to bankers. Cleveland alleged that the creators of CDO’s “explicitly countenanced loans made to borrowers either on financially irrational terms or without any information to corroborate the borrowers’ wherewithal to pay – anything to keep new mortgages coming for the creation of still more mortgage-backed securities.” Cleveland argued the city as a whole suffered from the sharp decline in home ownership and a large increase in vacant properties that resulted from foreclosures on homes with subprime mortgages.[45] Cleveland failed in court to win compensation for what it claimed was the “public nuisance” caused by Morgan Stanley and other financial firms.[46]

Bailout

TARP Funding

Morgan Stanley experienced the initial tremors of the financial crisis in 2007. At the end of 2007, it had to declare the first quarterly loss in its history, writing down $9.4 billion in mortgage-related investments. The bank sought and obtained a $5 billion investment from the Chinese sovereign wealth fund China Investment Corporation to shore up its balance sheet.[47]

However, after the September 2008 collapse of Lehman Bros. speculation was that Morgan Stanley would be the next large US investment bank to go down. In October 2008, Morgan Stanley received $10 billion in funding from the US Treasury under the Troubled Assets Relief Program. University of Lousianna professor Linus Wilson stated in Fortune magazine that "No large bank was in greater danger of failing right after the passage of TARP than Morgan Stanley.”[48] The firm’s stock price plunged from a high of $85 in 2007 to a low of $6.71 during 2008. Morgan Stanley benefited not only from receiving TARP funds but also by having its stock protected by the government’s temporary ban on short selling implemented in September 2008.[49] Morgan Stanley repaid its TARP funding in June 2009. [50]

John Mack, current chair of Morgan Stanley and its CEO from 2005 to 2009, has acknowledged the importance of government assistance to the banks. Mack said in his testimony to the Financial Crisis Inquiry Commission: “Our firm appreciates the importance of the federal government’s financial support, which helped prevent a collapse of the financial system. There’s no denying that every firm in the industry—and the broader financial markets as a whole—benefitted from this support.” [51]

Low Interest Loans from the Fed

Data released from the Federal Reserve on November 30, 2010 revealed how dependent firms like Morgan Stanley were on low interest loans from the Fed for their day-to-day financing during the height of the financial crisis. A special Fed loan program – the “Primary Dealer Credit Facility” (PDCF) – was created in March 2008 when Bear Stearns was collapsing and continued until February 2010. The data for this program show that the loans given to Morgan Stanley stand out because of their size. Of the 17 separate loans over $30 billion that the Fed granted under the Primary Dealer Credit Facility, all but 2 went to Morgan Stanley. The firm and its London subsidiary received PDCF loans 212 times, getting a combined total of as much as $61 billion on a single day.[52] This amount may be more than the company was worth at the time. Morgan Stanley was only able to get $9 billion for selling a 21% stake of itself to Mitsubishi in the fall of 2008.[53]

Huffington Post reporter Shahien Nasiripour explained the significance of the data on the Fed loans: “Essentially, the Fed gave Wall Street overnight loans with interest as low as 0.50 percent in order for the firms to have cash that they could then use to buy other securities or make loans. Those firms could trade with that cheap money and profit handsomely. As collateral for those loans, Wall Street firms gave the Fed securities that were, in essence, junk.”[54]

When the Fed loans during the crisis were revealed, Independent Senator Bernie Sanders asked if the trillions of dollars leant ended up benefiting Wall Street’s highly paid executives who were responsible for the crisis. He asked for an investigation into whether firms borrowed at near zero interest rates from the Federal Reserve only to turn around and lend to the government at higher rates.[55] In a letter to Federal Reserve Chair Ben Bernanke, Sanders asked why small business owners were not able to get affordable credit, people were losing their homes to foreclosure, and consumers were being charged 25-30% interest rates at the same time that banks were granted ultra-low interest rate loans from the Fed. Sanders asked for an explanation for why “the wealthiest people in the world also received a major bailout from the Fed.”[56] One of the specific Fed emergency loans Sanders questioned was given to Christy K. Mack, wife of Morgan Stanley CEO John Mack.[57]

Wall Street Journal reporters concluded that Morgan Stanley’s reliance on the Fed for funding during the crisis was “an indication of just how close Wall Street's second-largest investment bank came to the brink of collapse during the financial crisis.” In addition to borrowing under the Primary Dealer Credit Facility, Morgan Stanley also made extensive use of the Fed’s “Term Securities Lending Facility”(TSLF), which gave out loans of Treasury securities for periods as long as 28 days. Morgan Stanley took out 34 loans under the TSLF for amounts as high as $10 billion.[58]

Beneficiary of AIG Bailout

The Congressional Oversight Panel for the TARP program issued a report in June 2010 on the bailout of American International Group (AIG). The report detailed how the banks who were the counterparties to AIG in credit default swaps and other deals benefited from the AIG bailout. The panel was critical of the Federal Reserve for allowing AIG to use government funds to pay off AIG’s counterparties in full, rather than negotiating a discount on these payments. The panel concluded:

“The rescue of AIG distorted the marketplace by transforming highly risky derivative bets into fully guaranteed payment obligations. In the ordinary course of business, the costs of AIG’s inability to meet its derivative obligations would have been borne entirely by AIG’s shareholders and creditors under the well-established rules of bankruptcy. But rather than sharing the pain among AIG’s creditors – an outcome that would have maintained the market discipline associated with credit risks – the government instead shifted those costs in full onto taxpayers out of a belief that demanding sacrifice from creditors would have destabilized the markets.”[59]

The Congressional Oversight Panel was also critical of the Fed for allowing itself to be involved in perceived conflicts of interest, stating: “The lawyers who represented banks trying to put together a rescue package for AIG became the lawyers to the Federal Reserve, shifting sides within a matter of minutes. Those same banks appeared first as advisors, then potential rescuers, then as counterparties to several different kinds of agreements with AIG, and ultimately as the direct and indirect beneficiaries of the government rescue.”[60]

Bank officials, including representatives of Morgan Stanley, rejected a private sector solution to the AIG crisis in two separate meetings held at the New York Federal Reserve Bank on September 15, 2008. The Panel reported that Morgan Stanley was “one of AIGs counterparties until November 2008, though its exposure to AIG was significantly smaller than Goldman's. Morgan Stanley was hired by the government as an advisor in the private-sector rescue talks from September 14-16, 2008. More recently, Morgan Stanley has served as FRBNY’s banker in connection with its investment in AIG.”[61] The Federal Reserve documents released in July 2009 reveal that, starting in October 2008, the Federal Reserve Bank of New York paid Morgan Stanley a $4 million fee plus $2.5 million per month for its work on AIG.[62]

Although it was not the principal beneficiary, Morgan Stanley was among the banks that benefited from the billions of dollars the government provided through different bailout programs to AIG. Data released by AIG reveal that in the months immediately after the government bailed out the company in September 2008, AIG made $200 million in collateral payments to Morgan Stanley. Morgan Stanley received an additional $1 billion as part of the payments AIG made to its securities lending counterparties.[63]

Other Controversies

Support for Privatizing Social Security

The financial industry stands to be a major beneficiary of any privatization of US Social Security, as privatization experiments in Britain and Chile have borne out. Privatized social security accounts would create opportunities for financial institutions to gain millions of new accounts, charging for marketing and management fees. Morgan Stanley has given financial support for groups advocating the privatization of social security.[64]

Morgan Stanley was the focus of a September 2010 protest against cuts to Social Security. Organizer Bob Kingsley explained why the protest was staged in front of Morgan Stanley’s headquarters:"We are gathered here at the scene of the crime. Morgan Stanley and the other big banks are the source of the plan to privatize and cut Social Security." The protest was also directed at Erskine Bowes, a current Morgan Stanley director who advocated Social Security privatization as Bill Clinton’s Chief of Staff. Bowes is now pushing for cuts to Social Security as co-chair of the National Commission on Fiscal Responsibility and Reform that has made Social Security its prime target. [65]

Lobbying and Opposition to Regulatory Reform

In 2008 Morgan Stanley was listed as one of the top TARP recipients in political contributions and lobbying, spending $6.8 million overall. Morgan Stanley spent $3,689,027 in political contributions and $3,120,000 for lobbying.[66] Morgan Stanley benefited in 2008 from $10 billion in TARP money as well as from some of the largest low interest loans given out by the Federal Reserve through its emergency lending programs.

In September, 2009, Morgan Stanley's political action committee made $110,000 in political contributions, approx 60% going to Republicans opposing financial reform legislation. Half of Morgan Stanley's donations went to members of the House Financial Services Committee with $2500 of this amount donated to Rep. Spencer Bauchus, the top Republican on the committee. $5,000 was also donated to House Minority Leader John Boehner of Ohio.[67]

Off-shore Tax Havens

The US Treasury has estimated that regulatory reforms to combat the loss of through offshore tax havens would recoup between $100 billion and $130 billion per year, more than the costs of the health reform package. [68] Morgan Stanley has set up 158 subsidiaries in the Cayman Islands, far more than any other major US bank. The Cayman Islands has no income, estate, or corporate taxes. In its story on the bank bailout and offshore tax havens, CBS News pointed out that “Even as they benefit from tax money, they operate hundreds of subsidiaries in places widely known for helping people evade taxes.”[69]

CFTC Fine

In what was termed “another black eye for Wall Street”, the Commodity Futures Trading Commission fined Morgan Stanley in April 2010 for not reporting a large crude oil trade it had made with the Swiss bank UBS. The CFTC alleged that a Morgan Stanley trader had asked UBS not to report the trade until after the close of the day’s trading, in contravention of CFTC regulations. Morgan Stanley paid $14 million to settle the case without admitting guilt. Morgan Stanley trades oil contracts both on CFTC regulated exchanges and as well in “dark markets” where derivative bets are placed on the movement of oil prices. Morgan Stanley and other Wall Street banks involved in commodity trading have come under fire for driving up prices. A news story on Morgan Stanley’s CFTC fine reported: “Critics believe Wall Street speculation drives up oil prices by creating false impressions of tight supplies, and by using investor money, often from pension funds, to take buy-and-hold positions in oil contracts as if they were stocks to be held with the anticipation of price gains.” One critic estimated the cost to consumers of Wall Street speculation was $146 billion annually. [70]

Political influence

Campaign contributions

Over the 2010 election cycle, Morgan Stanley made $1,060,330 in contributions, $615,929 going to Republican candidates and $418,951 going to Democrats.[71]

In figures taken from 1989 - 2010, Morgan Stanley ranks fourth in terms of the largest political contributions made by banks and 31st in the overall ranking of the largest contributors. Morgan Stanley contributed $20,026,373 over those three decades, 54% going to Republicans and 44% going to Democrats.[72]

John Mack, Morgan Stanley’s CEO from 2005 to 2009 and current Chair, was a Bush Ranger, having raised over $200,000 for George W. Bush’s 2004 presidential campaign. Mack gave $70,000 to Republican candidates and $10,000 to Democratic candidates between 2002 and 2007. In 2007, he surprised financial observers by supporting the presidential candidacy of Hillary Clinton.[73]

Lobbying

Lobbying Expenditure for 2009: $2,880,000 [74]

Decade-long lobbying expenditure total (1998-2008): $28,635,440[75]

In 2008 Morgan Stanley was included in the list of top TARP recipients in political contributions and lobbying, spending $6.8 million[76]. The amounts were $3,689,027 in political contributions and $3,120,000 for lobbying.

The company spent $2,720,000 for lobbying in 2006. $640,000 went to seven outside lobbying firms with the remainder being spent using in-house lobbyists. [77]

Coal investments

In November 2011, Morgan Stanley was listed as the number 4 global financier of coal-fired power plants in a report complied by various environmental groups entitled, Bankrolling Climate Change: A Look into the Portfolios of the World's Largest Banks. The report noted that Morgan Stanley spent $7,317 million euros on coal plants around the world since 2005.[78]

The new coal-fired power plants being funded by the company include:

Personnel

Board of Directors

As of October 2012:[79]

Former board members include:[80]

  • John J. Mack, former Chair
  • James H. Hance, Jr.
  • Nobuyuki Hirano

Executive Management

As of February 2013:[81]

  • James P. Gorman, Chairman and Chief Executive Officer
  • Jeff Brodsky, Chief Human Resources Officer
  • Kenneth M. deRegt, Global Head of Fixed Income Sales and Trading
  • Mark Eichorn, Global Co-Head of Investment Banking
  • Greg Fleming, President of Investment Management and Wealth Management
  • Eric Grossman, Chief Legal Officer
  • Keishi Hotsuki, Chief Risk Officer
  • Colm Kelleher, Co-President, Institutional Securities
  • Franck Petitgas, Global Co-Head of Investment Banking
  • Ted Pick, Global Head of Equities
  • Ruth Porat, Chief Financial Officer and Executive Vice President
  • Jim Rosenthal , Chief Operating Officer

Former operating committee members include:[82]

  • Frank Barron, Chief Legal Officer
  • Walid Chammah, Chairman and CEO, Morgan Stanley International
  • Charles Johnston , President, Morgan Stanley Smith Barney
  • Gary G. Lynch, Vice Chairman
  • Thomas Nides, Chief Operating Officer
  • Paul J. Taubman, Co-President, Institutional Securities

Key executives and 2006 pay:[83]

Contact details

1585 Broadway
New York, NY 10036
Phone: 212-761-4000
Fax: 212-762-8131
Web: http://www.morganstanley.com

Articles & resources

Featured SourceWatch Articles on Fix the Debt

External resources

References

  1. Michael J. Moore, "Morgan Stanley Said to Discuss Separating Prop-Trading", Bloomberg, November 12, 2010.
  2. Morgan Stanley, "2011 10K", organizational document, page 44.
  3. Press release, Invesco and Morgan Stanley Announce Pricing of Secondary Common Stock Offering
  4. Ron Chernow, The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance, 2001, p. xii
  5. Barry Ritholtz and Aaron Task, Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, May 2009, p. 200.
  6. Transcript, First Public Hearing of the Financial Crisis Inquiry Commission, January 13, 2010, p. 69.
  7. Huffington Post, “Andrew Ross Sorkin: Morgan Stanley, Goldman Sachs Were On The Verge Of Collapse Last Fall”, December 21, 2009.
  8. “Inside the Bunker: CEO John Mack on Saving Morgan Stanley”, UniversiaKnowledge@Wharton, October 21, 2009.
  9. Gillian Tett, Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe, 2009, p. 147
  10. Barry Ritholtz and Aaron Task, Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, May 2009, p. 146.
  11. Scott Patterson, “The Quants: How a new Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It.” February 2010, p. 201.
  12. Transcript, President’s Financial Crisis Inquiry Commission, January 13, 2010, p. 18.
  13. Congressional Oversight Panel, “August Oversight Report – The Continue Risk of Troubled Assets”, August 11, 2009.
  14. Robert Weissman and Harry Rosenfeld, “Sold Out: How Wall Street and Washington Betrayed America,” Wall Street Watch, March 2009, p. 17.
  15. Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets, March 2009, p. 181.
  16. Reuters, "Some U.S. bank pay "unmoored" from performance: Cuomo", July 30, 2009.
  17. Frank Partnoy, F.I.A.S.C.O. – Blood in the Water on Wall Street, March 2009, p. 104.
  18. Frank Partnoy, F.I.A.S.C.O. – Blood in the Water on Wall Street March 2009, p. 89
  19. Frank Partnoy, F.I.A.S.C.O. – Blood in the Water on Wall Street Frank Partnoy, March 2009, 59
  20. Scott Patterson, “The Quants: How a new Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It.” February 2010, p. 200.
  21. Scott Patterson, “The Quants: How a new Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It.” February 2010, pps. 200, 228.
  22. Scott Patterson, “The Quants: How a new Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It.” February 2010, p. 230.
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