What Is Morgan Stanley?:
Founded in 1935, Morgan Stanley is a leading global investment bank with over 45,000 employees worldwide and earnings of $7 billion in 2006. It is most known for its investment banking business, in which it helps companies, cities and foreign governments raise money through issuing stocks or selling bonds. It also does trading and offers investment advice on stocks, bonds, commodities and other financial products. Finally, it manages the investment portfolios of wealthy individuals, companies and governments.
Why Is Morgan Stanley Important to the U.S. Economy?:
Morgan Stanley has brokered many important Initial Public Offering (IPO's), including Rosneft in 2006, Google in 2004, Conoco in 1998, China International Capital Corporation in 1995, and Apple in 1980. In 2008, the Treasury Dept. hired it to advise on the rescue of Fannie Mae and Freddie Mac.
In the 1990's, the company merged with Dean Witter Reynolds, and then Discover Company, which it subsequently spun off in 2004. It lost 13 employees in the 9/11 attacks, and moved 2,300 employees to lower Manhattan, the largest such move at the time. (Source: Morgan Stanley web site; Wikipedia, Morgan Stanley)
Morgan Stanley Became Overleveraged in Subprime Mortgages:
Morgan Stanley has written down $15.7 billion in mortgage-backed securities since the Banking Crisis started last year. As a result, it needed to raise more capital, which it got from foreign banks. It received $5 billion from the China Investment Corporation in exchange for nearly 10% of its shares. Mitsubishi Financial Group, Japan's largest bank, will contribute $8.4 billion for 20% of the company, becoming the biggest overseas acquisition by a Japanese bank.
Why Did Morgan Stanley Become a Bank Holding Company?:
On September 21, 2008, Morgan Stanley applied to the Federal Reserve to become a bank holding company. This allows it to take deposits like a commercial bank, allowing it to be less reliant on raising capital from other banks. It will also be regulated by the Federal Reserve, which gives it access to the Fed's discount window. All of these measures make Morgan Stanley seem like a safer investment to stockholders, who had driven down the company's share price as a result of the banking crisis. (Source: Bloomberg, Goldman, Morgan Bring Down End to an Era, September 22, 2008)
