Morgan Stanley has suspended a London-based credit trader after learning that he overestimated the value of his positions by $120m. The US investment bank has been investigating the matter since May but has not yet concluded whether the misstated values were made in error.
The trader was an executive director at the bank, meaning he probably had at least 10 years' experience. No other trader has been suspended and Morgan Stanley is said to believe he was acting alone.
The trader's positions were in assets that are difficult to value in current frozen markets. A review of his book showed the valuations were not made according to Morgan Stanley policies. The matter has been reported to the Financial Services Authority.
Morgan Stanley is the latest investment bank to discover errors or wrongdoing by traders. In January, the French bank Société Générale was rocked by the dealings of a minor trader which allegedly caused a €4.9bn (£3.9bn) loss. Lehman Brothers suspended two London equity traders in February after internal controls revealed issues with share valuations.
Yesterday's "negative adjustment" to Morgan Stanley's valuations emerged as it reported second-quarter net income down 57 per cent to $1.03bn (£526m). It blamed the fall on sharp declines in investment banking and asset management earnings.
The headline figure was in line with forecasts but was boosted by $698m from selling a Spanish wealth management business and $732m from a secondary offering of stock in Morgan Stanley Capital International.
The gains helped offset $245m of severance costs, $436m of losses from proprietary mortgage trades and $519m of losses on leveraged loans.
Morgan Stanley's results follow an 11 per cent fall in profits at Goldman Sachs and a $2.8bn loss at Lehman Brothers.Reuse content