Mike Mayo
Photographer: Kholood Eid / Bloomberg
Photographer: Kholood Eid / Bloomberg
The roar of Morgan Stanley’s record quarter is drowned out by the prolonged silence over a nearly $ 1 billion loss from the Archegos collapse – and that invites the most outspoken Wall Street analyst to speak out.
The bank only made its losses known in its earnings report, even as peers previously added up their hit of what was one of the most stunning fund collapses in more than two decades. Chief Executive Officer James Gorman said he was satisfied with the way the company handled the liquidation and said he was not to feel forced to announce the hit in the middle of a record quarter.
“Would this be material if it is a bear market? I don’t see how materiality is determined by whether it’s a bull market or a bear market, ”said Mike Mayo, an analyst at Wells Fargo & Co., in an interview. For a while, the agency around Archegos was the talk of the town before revenue. Investors wanted to know. “
Morgan Stanley exacerbated his $ 911 million accident by not disclosing this issue earlier and then rejecting the error in the earnings call, he said.
“This is not the norm that many investors would want to see,” Mayo said of the belated disclosure in a note, adding that it was a rare misstep on the part of Gorman.
Morgan Stanley shares were the weakest of the major US banks this week, after falling 2.6% despite the successful first quarter results.
A bank representative declined to comment.
Read more: The rapid rise and even faster fall of the $ 20 billion whale
Morgan Stanley had built one of the largest positions in Bill Hwang’s company and has now emerged as the only major US bank to suffer the losses from the family office burst. The New York-based company was one of Archegos’ early backers, despite the legal slur attached to Hwang, who was previously charged with insider trading and pleaded guilty to wire transfer fraud on behalf of its predecessor hedge fund, Tiger Asia Management in 2012 .
Mayo, a veteran Wall Street analyst, has a reputation for taking a more combative approach, in stark contrast to his peers. He is known for not being afraid to challenge bank executives and play with them on public revenue every quarter. He is the author of “Exile on Wall Street: One Analyst’s Fight to Save the Big Banks From Themselves.”
“Whether there were records in stocks or the company as a whole seems irrelevant in our view, given a risk management problem that caused this type of loss with just one hedge fund,” he wrote in his note.
“Jamie Dimon is one of the best CEOs of our generation, and he’s made a big mistake by losing the London Whale by calling it a ‘storm in a teapot’ because they weren’t big in the context of company-wide revenues, “Mayo said of the 2012 incident involving JPMorgan Chase & Co.” You have another strong CEO in James Gorman who seemed dismissive about losses in the context of company-wide earnings, even though it seems material. “
The forced liquidation of Archegos’ portfolio that began on March 25 caused stocks to collapse and continues to send shockwaves across capital markets. Blocks linked to the company’s holdings even hit the market this week.
Credit Suisse Group AG was the hardest hit bank, after announcing a hit of nearly $ 5 billion from its exposure to the family office. The Japanese bank Nomura Holdings Inc. has also told shareholders that their company is facing a “significant” loss of up to approximately $ 2 billion. The securities arm of Japan’s largest bank, Mitsubishi UFJ Financial Group Inc., has also said it will record a loss of $ 270 million.
The calm has drawn a lot of market attention because it happened at such a favorable time for capital markets, according to Mayo.
“It’s like this huge rose bush with this thorn in the middle,” he said. “Whoever pricked that thorn really stands out.”
– With the help of Felice Maranz