Morgan Stanley Takes Huge Writedown, S&P Takes Ratings Action On 6 Bond Insurers

December 19, 2007 at 10:54 am  ·  Category: Bonds, Market Commentary, Stocks

Before the open this morning, Morgan Stanley (MS) announced fiscal year 4th quarter earnings, which included a $9.4 billion writedown related to mortgage backed securities. 

This resulted in a loss of $3.6 billion in the quarter or $3.61 a share! 

They also announced a $5 billion dollar investment from China Investment Corporation (MS FY 4Q Earnings Release)

Their retail brokerage, asset management and investment banking businesses held up okay, but the writedown wrecked the quarter.

Exposure to subprime mortgage backed securities was reduced from $10.4 billion at the end of the last quarter to $1.8 billion currently so there doesn’t appear to be the potential for too much in writedowns going forward.

Investors liked what they heard, with the investment by China and the “kitchen sink” writedown.  Morgan shares are up about 4%.

*****

Markets were up early on the Morgan report, but around 11:15am EST Standard & Poors took ratings action on 6 bond insurers, downgrading ACA Financial’s debt to junk and lowering the outlook for Ambac, FGIC, MBIA and XL Capital (subcription required – free).

This announcement took the wind out of the market and the S&P lost 10 points in about 20 minutes, going from medium positive to medium negative (S&P Intraday Chart).

And that’s where we are at the midpoint of the trading day.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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