Does Morgan Stanley (NYSE: MS) Deserve an Inquiry Letter too?

April 08, 2021, 10:27 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

The fallout of Archegos Capital is rightfully triggering inquiries by the Senate Banking Committee Chair, Sherrod Brown.  However, the inquiry letters that we know of were missing a critical element.  An inquiry letter to Morgan Stanley (NYSE: MS) was missing.

This is relevant because Morgan Stanley seemed to have passed on shares of stocks held by Archegos Capital to funds they worked with so those funds would take the loss, instead of taking the loss itself.

Morgan Stanley was facing a $10 Billion loss exposure, but instead of stomaching the loss it promoted the shares at a discount to other funds it worked with, and passed the loss that followed onto them.  The subsequent losses were massive.  For example, CBS Corporation (NASDAQ: VIAC) fell by more than 50%.

Conversely, Credit Suisse (CS) did not try to pass on losing positions to its clients.  Instead, Credit Suisse accepted the risk internally.  Executives at Credit Suisse paid the price, and the issue caused a shakeup on the risk management side of the business, but the loss was not put off.

Congressional inquiries into risk management practices are clearly warranted, but when risk managers at a firm pass on known risks to their clients, a much more serious offense takes place.  That should be part of the inquiry.

Opinion:

Hedge Funds working with Morgan Stanley might question the integrity of the firm and any offerings made by the firm, where Hedge Funds working with Credit Suisse would have the utmost confidence in the integrity there.

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