MORGAN STUNG BY ROGUE TRADER, GAS PAINS
Contact The Author
Morgan Stanley CEO John Mack spent yesterday dealing with a double-whammy, as the investment bank grappled with the discovery that a rogue trader lost the firm $120 million on the same day that it reported a massive plunge in second-quarter profit.
The firm disclosed that a London-based credit-derivatives trader lost the nine-figure sum when he did not appropriately mark the values of securities in his trading portfolios.
Sources tell The Post that the trader was specifically involved in trading options in various indices.
A spokesman for Morgan Stanley in New York declined to comment.
To be sure, the losses by the unidentified rogue trader are a drop in the bucket compared with the massive $7 billion loss incurred by Société Générale rogue trader Jerome Kerviel.
However it was still a big black eye for Mack and Morgan Stanley, where slack trading performance resulted in the high-profile firing of Zoe Cruz, a onetime heir apparent to Mack.
That news came as Morgan posted second-quarter earnings of $1.03 billion, or 95 cents a share – off 57 percent from a year ago.
The investment bank’s earnings did manage to beat analysts’ expectations, as losses were offset by $1.4 billion in gains from the sale of a wealth management unit in Spain and a portion of its index trading business.
Not even Morgan’s much-vaunted commodities trading platform provided solace in the quarter.
Morgan CFO Colm Kelleher noted that trading in electricity proved more challenging for the firm.
One official familiar with Morgan’s power and gas trading unit said that liquidity in energy trading has been particularly hurt by the fact that many of its peers, including Lehman Brothers and Credit Suisse, have been on the sidelines.
In contrast, Goldman Sachs’ commodities trading business fared much better when it posted its second-quarter earnings on Tuesday, which, though down from 2007, beat Wall Street projections.