BusinessTimes
MORGAN Stanley Chief Executive Officer John Mack said tumbling markets may drive some hedge funds out of business.
“Some of my friends in that community say that by year-end, you’ll see the number of firms in the hedge-fund area shrink, I’ve heard as large as 30 per cent,” Mack, 63, told CNBC yesterday.
As the industry shrinks, “we need to resize our prime brokerage business.”
Morgan Stanley’s prime brokerage business, which lost clients last month after Lehman Brothers Holdings Inc filed for bankruptcy, is winning back some of those clients since gaining a US$9 billion investment from Mitsubishi UFJ Financial Group Inc, Mack said.
“Funds that took some of their money, in some cases all their money, are coming back,” he said. “Without question those people who pulled out are coming back.”
Mack, who lobbied last month to have regulators restrict short selling because he thought the practice was hurting his company’s stock, said he supports it in principle.
A three-week ban on short selling imposed by the Securities and Exchange Commission expired earlier this month.
“I believe in short-selling, I believe in it today, it’s a way that people can express their view on a company,” he said.
He said that in “extreme circumstances” the practice has exacerbated problems in the financial system and “it’s prudent to have some kind of controls.”
More De-Leveraging Ahead
Morgan Stanley, which became the fifth-biggest US bank holding company, is reducing its ratio of assets to equity, known as leverage, as securities ranging from mortgage debt to corporate loans to stocks drop in value.
The firm’s leverage ratio, currently slightly below 20 times, will drop into the “mid-teens,” Mack said in yesterday’s interview.
“There’s more de-leveraging to be done” Mack said of the broader financial community. “People are scared, and when they’re scared they want to go to cash, they want to de- leverage, and they’re doing that.”
Mack said the current financial system crisis is the worst he’s seen. “I’ve never seen anything like this or anything close to this,” he said. “I think we’re in for a rocky road for a while.” - Bloomberg
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