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Bloomberg - Morgan Stanley Chief Executive Officer John Mack said tumbling markets may drive some hedge funds out of business, prompting his firm to “resize.”
“Friends in that community say that by year-end, you’ll see the number of firms in the hedge-fund area shrink, I’ve heard as large as 30 percent,” Mack, 63, told CNBC today. As the industry contracts, “we need to resize our prime brokerage,” he said.
Morgan Stanley’s prime brokerage unit, which lost clients last month after the bankruptcy of Lehman Brothers Holdings Inc. fueled a global bank crisis, is regaining some customers since sealing a $9 billion investment from Mitsubishi UFJ Financial Group Inc., Mack said.
“Funds that took some of their money, in some cases all their money, are coming back,” he said. “Without question those people who pulled out are coming back.”
Reuters – Japan’s Mitsubishi UFJ Financial Group, which has watched Morgan Stanley’s share price plunge 58 percent last week, is seeking more favorable terms to its $9 billion deal, a person briefed on the matter said.
The Japanese lender will still buy a 21 percent stake from Morgan Stanley for $9 billion, but will amend the terms to include only convertible preferred shares and no common stock, the source said.
Morgan Stanley is the latest stricken U.S. financial institution to seek refuge in a deal with a larger bank as the worsening credit crisis and accompanying market meltdown has narrowed the options of once stable banks and brokerages.
The Morgan Stanley news comes as Spain’s Banco Santander SA was in advanced talks to buy full control of Sovereign Bancorp Inc in a deal valued at $2.5 billion, according to another source familiar with the matter.
Trading Markets – Morgan Stanley is looking at scaling back its prime-brokerage operation, selling assets or buying a faltering regional bank, the New York Post said citing sources.
The firm may also try to work out a way to piggyback on to the $1.3 trillion deposit base of Japan’s Mitsubishi UFJ Financial Group, the paper said citing people familiar with the matter.
Mitsubishi UFJ took a 21 percent stake in Morgan Stanley for $9 billion earlier this week.
The firm is also eyeing trimming its balance sheet and exiting, or scaling back, from businesses that don’t provide high returns, like prime-brokerage, trading of corporate bonds and high-yield debt, the paper added.
Reuters Tokyo – Japanese government bond futures soared by their daily limit of 3 full points on Tuesday and 10-year yields hit a five-month low on safe-haven buying in the wake of the collapse of Lehman Brothers.
Global stock markets and crude oil prices plunged on Monday after Lehman, crushed by losses from the U.S. mortgage crisis and unable to find a buyer, sought bankruptcy protection.
"A pretty sharp increase in credit risk and worries about credit seems inevitable," said Naomi Hasegawa, senior fixed income strategist for Mitsubishi UFJ Securities.
Growing expectations that the U.S. Federal Reserve may lower interest rates at a policy meeting later on Tuesday were also giving a lift to JGBs and euroyen futures, Hasegawa said.
Bloomberg- Mitsubishi Asset Brains Co., an investment advisory firm of the Mitsubishi financial group, plans to start a fund of hedge funds as it seeks to invest in managers that can make money in falling markets.
The company aims to start advising a fund in the next “two- to-three years” with the aim of raising “several tens of billions of yen,” Akihiro Nishi, executive director at the Tokyo-based company’s investment advisory division, said in an interview in Tokyo. The company has hired a hedge fund manager who will start in August, he said.
Mitsubishi Asset Brains aims to tap growing demand for funds of hedge funds since the credit crunch that stemmed from U.S. subprime loan problems prompted investors to seek diversified investments to secure steady returns. The money managed by funds of hedge funds has grown more than 800 percent since 2003, according to Singapore-based research firm Eurekahedge.
