So how will Morgan Stanley’s transformation into a bank holding company change the way it does business? Judging by today’s New York Post, they are not really sure. The bank is considering scaling back its prime-brokerage business, selling assets or buying a faltering regional bank, the Post’s report says.
Morgan Stanley may also look to piggy bank off Japan’s Mitsubishi UFJ Financial Group $1.3 trillion deposit bank. Mitsubishi bought a 21% stake in Morgan Stanley for $9 billion earlier this week. It’s not quite clear how this would fit into current US capital adequacy regulations.
Morgan Stanley, like most of its now deceased rivals, has seen formerly high return businesses such as prime-brokerage and trading corporate and high-yield bonds lose profitability. The prime brokerage customers, in particular, have fled to larger financial institutions viewed as more secure. This business is also increasingly viewed as risky, as hedge fund clients have demonstrated that they can be highly skittish, and news that they are abandonning an investment bank can trigger stock sales and broader customer flight.
Details of Morgan Stanley’s plans are still fluid the paper said, adding that Morgan Stanley refused to comment.
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