Posted on 08 Nov 2007
AIG's losses were not as severe as the billions of dollars in write-downs announced by Citigroup Inc., Merrill Lynch & Co Inc. and Morgan Stanley, all of which felt the sting of losses on subprime mortgage-related assets as the outlook for credit markets appeared even bleaker than it did in September.
New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value after Goldman Sachs Group Inc., said it lost $3.7 billion in the two months through Oct. 31. Prices for securities linked to home loans to risky borrowers sank further than traders expected, cutting fourth-quarter earnings by $2.5 billion, said the firm. Morgan Stanley CFO Colm Kelleher said markets may take three to four quarters to recover instead of the one or two he predicted in September.
Concern about potential writedowns at Morgan Stanley has pushed the stock lower this week, bringing this year's decline to 24 percent. The shares fell 6.9 percent to $51.19 in New York Stock Exchange composite trading. Citigroup and Merrill are both down more than 40 percent this year.
Merrill Lynch, the third-largest firm, announced it wrote down $8.4 billion of leveraged loans and fixed- income securities. Meanwhile, Citigroup, the largest bank in the U.S., announced its holdings lost as much as $11 billion of its value in October, and third-quarter earnings fell 57 percent on mortgage losses. Citigroup and Merrill Lynch both say the losses are larger than expected. Merrill Lynch reported the biggest loss in its 93-year history toward the end of October after writedowns were almost double the firm's forecast three weeks earlier.
Morgan Stanley's asset writedowns could wipe out fourth- quarter profit. The company was expected to earn $1.93 billion in the period, according to the average estimate of 10 analysts surveyed by Bloomberg. Altogether, the world's biggest banks have written down more than $50 billion after late payments on U.S. home- loans rose to a five-year high and foreclosures set a record.
Thus far Morgan Stanley CEO John Mack Mack hasn't faced the kind of investor criticism that preceded the November 4 resignation of Citigroup CEO Charles O. "Chuck'' Prince III and the ouster of his counterpart at Merrill Lynch, Stan O'Neal, on Oct. 30. Zurich-based UBS AG, the largest Swiss bank, fired CEO Peter Wuffli in July.
However, Morgan Stanley is eliminating about 300 jobs in the securities division after third-quarter revenue from fixed- income fell 3 percent, a person with knowledge of the decision said last month.