Mike Mayo
Photographer: Kholood Eid / Bloomberg
Photographer: Kholood Eid / Bloomberg
The rumble of Morgan Stanley’s record quarter is drowned out by its prolonged silence over a nearly $ 1 billion loss due to the Archegos crash – and it’s an invitation from the most outspoken Wall Street analyst.
The bank did not disclose its losses before its earnings report, although peers have compared their hit of one of the most beautiful collapses in more than two decades. CEO James Gorman said he was pleased with how the company handled the liquidation and said it was not happening bird forced to announce the hit in the middle of a record quarter.
‘Would it be material if it were a bear market? I do not see how materiality is defined by whether it is a bull market or a bear market, ‘Mike Mayo, an analyst at Wells Fargo & Co., said in an interview. ‘The case surrounding Archegos was a period before the merits the conversation of the city. Investors wanted to know. ”
Morgan Stanley exacerbated its $ 911 million crash by not disclosing the issue earlier and then rejecting the error in the earnings call, he said.
“This is not the standard that many investors would like to see,” Mayo said of the delay in disclosure in a note, adding that it was a rare mistake by Gorman.
The shares of Morgan Stanley were the weakest among the major US banks this week, after slipping by 2.6%, despite the instant results in the first quarter.
A representative of the bank declined to comment.
Read more: the rapid rise and even faster fall of the $ 20 billion whale
Morgan Stanley has built up one of the biggest exposures to Bill Hwang’s firm and is now the only major US bank to incur losses as a result of the family office flare – up. The New York-based company was one of Archegos’ first supporters, despite the legal injury related to Hwang, who was previously accused of insider trading and pleaded guilty in 2012 to fraud on behalf of his predecessor hedge fund, Tiger Asia Management.
Mayo, a veteran analyst on Wall Street, has built a reputation for taking a more belligerent approach, in stark contrast to his peers. He is known for not being afraid to challenge bank executives and entering every quarter with their calls for public earnings. He is the author of “Exile on Wall Street: A Struggle by One Analyst to Save the Big Banks from Themselves.”
“Whether there were records in equities or the business as a whole, in our view, seems irrelevant due to a risk management accident that caused this type of loss with just one hedge fund,” he wrote in his note.
“Jamie Dimon is one of the top CEOs of our generation and he made a big mistake and the losses of the London Whale by calling it a storm in a teapot ‘because it was not big in the context of headline earnings,’ Mayo said of the 2012 incident where JPMorgan Chase & Co. was involved. about losses in the context of fixed earnings, even if they seem material. ”
The forced liquidation of Archegos’ portfolio, which began on March 25, caused shares to tumble in the upswing and continues to hold shock waves through the capital markets. Blocks linked to the company’s businesses have hit the market even until this week.
Credit Suisse Group AG was the worst-hit bank after announcing a nearly $ 5 billion hit due to its exposure to the family office. The Japanese bank Nomura Holdings Inc. also told shareholders their business faces a “significant” loss of about $ 2 billion. The security arm of Japan’s largest bank, Mitsubishi UFJ Financial Group Inc., also said it would record a loss of $ 270 million.
The relaxation attracted intense attention from the market because it happened during such a favorable time for capital markets, according to Mayo.
“It’s like this big rose bush with this thorn in the middle,” he said. “Whoever pricks the thorn really stands out.”
– Assisted by Felice Maranz