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Morgan Seeks Divestiture in China – Analyst Blog

Zacks Market Commentaries — Mon, 09 Nov 2009 22:57:16 +0000

Morgan Stanley (MS) is pursuing a buyer to sell its 34% stake that it holds in investment bank China International Capital Corporation (CICC).

Morgan Stanley’s role in CICC has been reduced to that of a passive investor, prompting the case for disinvestment. Morgan Stanley received approval from Chinese regulators early last year to sell its stake in CICC. However, it then did not opt for the disinvestment as the bids were very low at that time. As the markets have now bounced back, the company now wants to revisit the deal.

Potential suitors for the divestiture in China's largest investment bank could be private equity firms, namely Bain Capital and General Atlantic. The first rounds for the bids are expected on Tuesday. The divestiture is expected to realize over $1.2 billion for Morgan Stanley.

On Oct. 21, Morgan Stanley reported third-quarter 2009 income of $498 million or 38 cents per share, compared with a loss of $159 million or $1.37 per share in the prior quarter and an income of $7.7 billion, or $7.38 per share a year ago. The results were much ahead of the Zacks Consensus Estimate of 30 cents per share.

The results marked the first quarter of income in a year’s time. Results were aided by robust underwriting revenues in the investment banking operation resulting from higher levels of market activity, strong growth in fixed income sales and trading, commodities, prime brokerage and wealth management business, which offset losses in commercial real estate.
Read the full analyst report on "MS"
Zacks Investment Research

Zacks Analyst Blog Highlights: Morgan Stanley, Goldman Sachs, St. Jude Medical, Inc., Medtronic Inc. and Boston Scientific Corporation – Press Releases

Zacks Market Commentaries — Thu, 22 Oct 2009 12:35:51 +0000

For Immediate Release

Chicago, IL – October 22, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Morgan Stanley (MS), Goldman Sachs (GS), St. Jude Medical, Inc. (STJ), Medtronic Inc. (MDT) and Boston Scientific Corporation (BSX).

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Here are highlights from Wednesday’s AnalystBlog:

Morgan Stanley Finally Profits

The results marked the first quarter of income in a year’s time. Results were aided by robust underwriting revenues in the investment banking operation resulting from higher levels of market activity, strong growth in fixed income sales and trading, commodities, prime brokerage and wealth management business, which offset losses in commercial real estate.

Unlike the preceding qaurters, the results were in line with strong results from competitors like Goldman Sachs (GS), which has been grabbing market share after the financial crisis.

St. Jude Beats Zacks Estimate

St. Jude Medical, Inc. (STJ) today reported financial results for the third quarter of 2009 before the market opened. Earnings per share came in at 59 cents, compared to the Zacks Consensus Estimate of 58 cents and the year-ago earnings of 54 cents.

Net sales in the reported quarter increased 7% year over year to approximately $1.2 billion. Excluding an unfavorable foreign exchange translation (FX), net sales increased 10% year over year. Growth was witnessed across all the business segments. However, the company’s domestic revenues were below expectation primarily due to lack of purchase of cardiac rhythm management (CRM) devices by roughly 50 hospitals in the U.S.

St. Jude’s cash and cash equivalents stood at approximately $798.3 million at the end of the reported quarter. The company ended the quarter with an outstanding debt of roughly $2.0 billion.

St. Jude has provided earnings per share guidance for the fourth quarter and full fiscal 2009. For the fourth quarter, earnings per share are expected between 61 and 63 cents. For full fiscal 2009, earnings per share are expected between $2.41 and $2.43.

St. Jude is a leading medical devices manufacturer that designs, manufactures and distributes medical devices to treat cardiovascular and neurological conditions.

Presently, St. Jude Medical holds the #2 market position for ICDs and pacemakers behind Medtronic Inc. (MDT) but ahead of Boston Scientific Corporation (BSX). This segment is the company’s largest in terms of revenues. St. Jude also holds the #2 market position behind Medtronic in neuromodulation.

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Zacks Investment Research

Morgan Stanley Finally Profits – Analyst Blog

Zacks Market Commentaries — Wed, 21 Oct 2009 19:02:30 +0000

Morgan Stanley (MS) reported third-quarter 2009 income of $498 million this morning or 38 cents per share, compared with a loss of $159 million or $1.37 per share in the prior quarter and an income of $7.7 billion, or $7.38 per share a year ago. The results were much ahead of the Zacks Consensus Estimate of 30 cents per share.

The results marked the first quarter of income in a year’s time. Results were aided by robust underwriting revenues in the investment banking operation resulting from higher levels of market activity, strong growth in fixed income sales and trading, commodities, prime brokerage and wealth management business, which offset losses in commercial real estate.

Unlike the preceding qaurters, the results were in line with strong results from competitors like Goldman Sachs (GS) and JPMorgan Chase & Co. (JPM), which has been grabbing market share after the financial crisis.

Net revenues for the quarter were $ 8.7 billion, up 60% sequentially but down 52% year-over-year compared with $18.0 billion in the third-quarter 2008. Global wealth management delivered strong results with underwriting revenues up 91% year-over-year to $3.0 billion. There were strong gains in both equity and debt underwriting, which more than balanced out $400 million in real estate losses.

However, the company’s exposure to the Commercial Real Sector, which is deteriorating continuously, will remain a cause for concern in the coming quarters.

The results were positively affected by the expansion of its retail brokerage business. The bank acquired a majority stake in Smith Barney from Citigroup Inc. (C) in May, and merged the operations with its own wealth management division. We believe Morgan Stanley will eventually buy out the remaining 49% stake from Citigroup soon enough.

The company recorded $900 million in charges related to the repurchase of its outstanding debt, which is worth more now because of the bank's improving financial condition.

In connection to the restructuring of its investment management division, Morgan Stanley announced the sale of its retail asset management business, including Van Kampen Investments. The divestment will allow Morgan Stanley to sharpen its focus on its institutional client base in asset management.
Read the full analyst report on "MS"
Read the full analyst report on "GS"
Read the full analyst report on "JPM"
Read the full analyst report on "C"
Zacks Investment Research

JPMorgan Advances Prime Brokerage – Analyst Blog

Zacks Market Commentaries — Thu, 10 Sep 2009 15:00:26 +0000

JPMorgan Chase & Co. (JPM) on Wednesday said a team would now be dedicated for delivering its integrated prime brokerage and custody platform to clients. The team, Prime-Custody Solutions Group, will serve hedge funds and asset managers who look for a combination of prime brokerage capabilities and securities services.

Bear Stearns was one of the only prime brokers that had offered custody benefits to clients since 1997. The prime brokerage flourished after it was acquired by JPMorgan. Its Treasury & Securities Services division now manages $13.7 trillion in assets under custody and is the industry leader in prime brokerage and custody businesses.

The new development will further expand its product offering and deliver additional benefits to clients in a more efficient manner. As a result, it will be able to capture extended market share during the ongoing market challenges which have underscored the importance of partnering with a prime brokerage that can safeguard assets in a separate depository.

We think this is the right time to launch the Prime-Custody Solutions Group while the hedge funds are launching long-only funds and seeking structures that allow them to house certain assets with custodians.

Investors voted JPMorgan to receive 75 “Best in Class" awards and nine “Top Ratings" in Global Custodian’s 2009 Prime Brokerage Survey. During the second quarter, the company also repaid the full $25 billion in preferred capital received as part of the Troubled Asset Relief Program (TARP).

JPMorgan reported disappointing second-quarter results, with a 47.2% year-over-year drop in earnings per share. Although results benefited from a record performance by the investment bank and solid performances in other segments, Consumer Lending and Card Services deteriorated due to continued high levels of credit costs.

We expect continued synergies from the company’s diversification and strong capital position, but increasing provisions and worsening credit quality will be a drag on upcoming results.

Read the full analyst report on "JPM"
Zacks Investment Research

New Prime Brokerage Model Emerging

Richard C. Wilson — Fri, 19 Dec 2008 16:12:09 +0000

h1 style="text-align: center;"bNew Prime Brokerage Model/b/h1h2 style="text-align: center;"bspan class="Apple-style-span" style="color: rgb(102, 0, 0);"New Prime Brokerage Model Emerging/span/b/h2br /a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://4.bp.blogspot.com/_wM_OZdOMR_Y/SUvGhHYSIaI/AAAAAAAACrA/bkbv9SI9Bmo/s1600-h/Prime-Brokerage-Trends.jpg"img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 134px; height: 200px;" src="http://4.bp.blogspot.com/_wM_OZdOMR_Y/SUvGhHYSIaI/AAAAAAAACrA/bkbv9SI9Bmo/s200/Prime-Brokerage-Trends.jpg" alt="New Prime Brokerage Model Emerging" title="New Prime Brokerage Model Emerging" id="BLOGGER_PHOTO_ID_5281533260240920994" border="0" //aThe credit crisis and the subject of counter party risk is proving to be the final nail in the coffin for the hedge fund industry's single prime brokerage model. Funds of all sizes now demand multiple custodial relationships.br /br /The problem the high-cost-structure leading a href="http://primebrokerageguide.com"prime brokerage/a firms now face is that without the assurance of the captive single prime model the economics of servicing smaller funds no longer make sense. This reality combined with the primes' decreased risk tolerance means that we are seeing a mass exodus away from the top-tier primes. Anecdotal evidence suggests that these primes are now in the process of weeding out clients that manage less than $100 million or that do not generate annual revenues of at least $250,000. We are also witnessing primes becoming more selective about what type of funds they are willing to service. Funds whose strategies involve less liquid securities and/or high leverage are now finding the bar set much higher.br /br /This retrenchment by the leading span style="font-size: 100%;"a title="" style="font-family: arial;" href="http://richard-wilson.blogspot.com/2007/10/hedge-fund-prime-broker.html" description="Hedge fund prime broker, prime broker services for hedge funds, hedge funds prime broker, hedge fund prime brokers, prime brokerage hedge funds, fund prime brokerage, hedge fund prime broker services, prime broker, prime brokers" alt="prime brokers, prime brokerage"prime brokers/a/span raises the obvious questions - Who will fill the void and offer prime services to the lower end of the market? Who will provide the financing, stock loan, technology infrastructure etc. necessary for smaller funds to generate alpha?br /br /Before we answer this question let’s take a moment to think about why this smaller hedge fund segment is so key to the future success of the industry. It is no secret that size kills alpha. Many successful funds follow a familiar arc. They gain attention (and funds) by earning outsized returns, as they grow in size their primary strategy reaches capacity and they experience a leveling off of returns. If they are not lucky enough to find another successful strategy, returns will continue to suffer, capital will begin to flow out and ultimately investment talent will go in search of new opportunities. This regeneration process is vital to the health of the industry and for many investors, it is the promise of catching a smaller fund during this growth phase that motivates them to invest.br /br /Historically the group charged with picking up the crumbs left by the leading primes was a group known as the mini-primes. This term is rapidly becoming obsolete as the mini-primes now find themselves expanding their offerings to attract the funds that have been displaced. Two important differences remain: 1 - The mini’s still use the clearing services of their larger prime broker brethren, and 2 - more importantly, their cost-structures evolved in a way that allows them to offer prime services profitably at this lower end of the market. Interestingly we are also seeing a number of new entrants to this expanded segment of the prime brokerage industry. These are for the most part more traditional brokers who see an opportunity to increase the stickiness of their execution services, as well to develop new revenue streams, by building out a prime brokerage offering.br /br /Only time will tell who will be successful in this greatly altered landscape of prime brokerage. The winners will be the firms that understand that the new economics of prime brokerage demand a new industry infrastructure. This prime infrastructure will rely heavily on cost-effective technologies that can offer aggregated multi-prime reporting, as well as real-time views of critical data such as Pamp;L and Risk, right to the desktop of the hedge fund. This restructuring of the prime model will ensure the health of the industry by continuing to offer a relatively low barrier of entry to the all important small hedge fund segment.br /br /Article contributed by Peter Curley of a href="http://www.nirvanasolutions.com/web/"Nirvana Solutions/abr /br /h4Related to New Prime Brokerage Model Emergingbr //h4ullia alt="Hedge Fund Tracker Tool" href="http://richard-wilson.blogspot.com/2008/08/hedge-fund-tracker-tool.html" title="Track over 1,000 Leading Hedge Funds"Hedge Fund Tracker Tool/a/lilia description="hedge fund marketing" alt="hedge fund marketing" href="http://richard-wilson.blogspot.com/2008/03/hedge-fund-marketing.html" title="Sharpen Your Hedge Fund Marketing Skills"Fund Marketing and Sales Advice /a/lilia href="http://richard-wilson.blogspot.com/2007/12/100-hedge-funds-to-watch.html"Top Hedge Fund Managers/a/lilia description="A collection of tools for hedge fund startups" alt="Hedge Fund Startup Tools" href="http://richard-wilson.blogspot.com/2008/09/hedge-fund-startup-tools-1-page-guide.html" title="Hedge Fund Startup Tools"Hedge Fund Startup Tools/a/li/ulTags: prime brokerage trends, prime brokerage news, prime brokerage, prime broker, prime brokers, California prime brokerage, new york prime brokerage, Dallas prime broker servicesdiv class="feedflare" a href="http://feedproxy.google.com/~f/richard-wilson-blog?a=mTrhhK3W"img src="http://feedproxy.google.com/~f/richard-wilson-blog?i=mTrhhK3W" border="0"/img/a a href="http://feedproxy.google.com/~f/richard-wilson-blog?a=MtgjPHXb"img src="http://feedproxy.google.com/~f/richard-wilson-blog?d=50" border="0"/img/a a href="http://feedproxy.google.com/~f/richard-wilson-blog?a=EExvxQJN"img src="http://feedproxy.google.com/~f/richard-wilson-blog?i=EExvxQJN" border="0"/img/a /divimg src="http://feedproxy.google.com/~r/richard-wilson-blog/~4/epLczgd2n8k" height="1" width="1"/

Asian Hedge Fund Leverage & Prime Brokerage

Richard C. Wilson — Tue, 21 Oct 2008 04:25:18 +0000

Asian Hedge Funds

Asian Fund Leverage & Prime Brokerage

(http://hedgefundblogger.com) It seems that many Asian-based hedge funds have dodged a few bullets by not being tied as closely to Bear or Lehman... that combined with traditionally using less leverage than some other funds might have helped a few Asian hedge funds weather this storm. By a few I mean very few - recent data suggests that Asian funds are down more than their peers over the last few months. Below is an excerpt on how some Asian funds have dodged the prime brokerage woes of US and UK based groups:
________________________

ASIAN hedge funds are relatively shielded from the distress that their counterparts in developed markets are weathering, thanks to their use of 'far less' leverage, said UBS head of prime services (Asia Pacific) David Gray.

'Our clients have been extremely sensible in the way they use gearing . . . and far more constrained in their use of illiquids.'

Still, Asian hedge funds could see redemptions of between 10 and 40 per cent. A clearer picture of the redemption rate is expected to emerge in early November.

Funds' cash levels vary between 20 per cent and more than 50 per cent, 'far higher than we have seen previously'. A year ago, cash levels were between 5 per cent and 10 per cent.

UBS yesterday hosted its third pan-Asian hedge fund conference. The bank's prime brokerage is the third largest in Asia after Goldman Sachs and Morgan Stanley, with a market share estimated at about 15-17 per cent. Prime brokerage continues to generate strong results for the group.

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Tags: Asian Hedge Fund, Asian Hedge Funds, asia hedge fund, hedge funds in asia, prime brokerage asia, prime brokers in asia, leverage used in hedge funds, asia hedge fund leverage

Frozen Margin Calls | Additional Single Prime Brokerage Risk for Hedge Funds

Richard C. Wilson — Wed, 15 Oct 2008 15:19:31 +0000

Frozen Margin Calls

Margins Calls on Frozen Assets

The motivation to multi-prime increased more this week as hedge fund managers learn they may have to meet margin calls on securities which are frozen within Lehman Brothers. Here is a short excerpt from a news piece on this topic:
_____________________________________________

Oct. 15 (Bloomberg) -- Lehman Brothers Holdings Inc.'s hedge-fund clients may have to pay more collateral on $65 billion of assets frozen when the investment bank went bankrupt a month ago.

Lehman's London-based prime brokerage has about 3,500 active clients including hedge funds that own about $45 billion in securities, Steven Pearson, the partner at PricewaterhouseCoopers responsible for unraveling Lehman's U.K. operations, said in an interview. They hold an additional $20 billion in short positions, or bets that prices will fall.

While investors are largely unable to access their Lehman accounts, the value of the securities continues to fluctuate along with the markets. The clients may be required to put up more collateral if the value of those securities drops, a process known as a margin call.

``If your bank fails, you still have to pay your mortgage,'' Pearson, 43, said in an interview in Lehman's Canary Wharf office. ``Who is the holder of the risk of the securities? The hedge funds. If the value of the securities fell, they have to meet margin calls.'' Source

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Tags: Margin Calls, Margin Call, Margin Call Risk, Stock Margin Call, Option Margin Call, Margin Call Price, Trading Margin Call, Futures Margin Call, Meet Margin Call, Group Margin Call, Lehman Brothers, LEH

Singapore Prime Brokerage | Hedge Fund Prime Broker Trends in Singapore

Richard C. Wilson — Tue, 07 Oct 2008 02:13:15 +0000

Prime Brokerage Singapore

Article on Prime Brokerage in Singapore

Here is a recent post from our associated PrimeBrokerageGuide.com site:

When visitors arrive at Singapore's Changi Airport, they get both an immigration card and an application form for opening a hedge fund.

This was one of the jokes making the rounds in 2007. The fact is that hedge funds in Singapore were growing fast since 2006. According to an article dated Feb 2007 from eFinancialCareers, "prime brokers are in hiring mode" - Barclays Capital, Citigroup, Lehman Brothers, Morgan Stanley and UBS all hired for their Singapore prime brokerage operations in 2006.

By Nov 2007, Singapore serves as prime broking regional headquarters for Credit Suisse Group, Citigroup Inc and Barclays Capital plc, according to HedgeFund Intelligence. Citigroup and Morgan Stanley also opened Singapore prime brokerage offices in 2007, to service the fast-growing number of hedge funds in that market. Morgan Stanley, the top Singaporean prime broker by assets under management according to Eurekahedge, had previously been servicing its Singapore clients from Hong Kong.

As the growth of hedge funds slowed down due to the credit crisis, an article (download pdf) dated Feb 2008 pointed out that "their (referring to the prime brokers in Singapore) enthusiasm for growth is now waning". As reported on Oct 4^th, 2008, Morgan Stanley is looking at scaling back its prime-brokerage operation (detail). However others believe that "Asian hedge funds may be cold, but the Asian prime brokerage industry remains sizzling"(FINalternatives), indicated by Citi's move to add eight professionals to four Asia offices in Aug 2008, including transferring Danielle Vint to handle the prime brokerage's fixed-income desk in Singapore.

It is said that Citi has fired "the latest salvo in the prime brokerage talent wars in Asia". In Feb 2008, Merrill Lynch hired Aussie hedge fund CEO Jeffrey Levy for Asia prime brokerage, to join the firm's Singapore office. Levy's hire fills the hole left by Harvey Twomey, who left Merrill Lynch to join Deutsche Bank as head of global prime finance sales in Asia. Another source reports that in Sep 2008, Deutsche Bank has moved Chris Pagan (LinkedIn) from Hong Kong to Singapore in order to head prime brokerage for Southeast Asia.

by Yifei Huang

Interested in learning more about the hedge fund industry in Singapore? Please see our geographical guide on this region: Singapore Hedge Fund Guide.

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Tags: Singapore Prime Brokerage, Prime Brokers in Singapore, hedge fund, hedge funds, Securities Lending in Singapore, Prime Brokerage Firms in Singapore, investments

Prime Brokerage Market | 1 Page Guide

Richard C. Wilson — Mon, 29 Sep 2008 02:51:41 +0000

Prime Brokerage Market Share

A Brief Overview of Industry Market Share

A good read titled "Battle of the Bulges" pointed out that competition for gaining prime brokerage market share is growing fiercer with more than $11 billion in expected hedge fund revenues in 2008, a 15% increase over 2006 (reported by TABB Group). The fight for market share is even more intense among the industry's top players.

For years the prime brokerage industry has been dominated by three firms—Goldman Sachs, Morgan Stanley and Bear, which collectively owned about two-thirds of the market. As of year-end 2006, the Lipper HedgeWorld prime brokerage league table ranked Morgan Stanley first (with 23% of the market and $153 billion in assets), followed by Bear (21%, $136 billion), Goldman (18%, $119 billion), UBS (7%, $47 billion) and Credit Suisse (4%, $25 billion), in terms of market share based on assets.

As Bear collapsed in March 2008, and Morgan Stanley and Goldman Sachs struggle to maintain their dominance in the industry, other major financial services firms are stepping up their prime brokerage efforts, including JPMorgan Chase, Deutsche Bank, UBS, Credit Suisse and BNP Paribas. JPMorgan Chased was only ranked eighth in the Lipper survey with just a 2.3% market share, now it is given a quick entry into prime brokerage as long as Bear's hedge fund clients are successfully locked down. BNP Paribas bought Bank of America's equity prime brokerage division that was ranked the sixth-largest in the country by assets at the end of 2006 by Lipper HedgeWorld, thus was instantly made one of the largest prime brokers in the U.S.

The recent turbulence in the prime brokerage industry also accelerated the trend of hedge funds moving away from replying on just one prime broker. Traditionally hedges funds are unwilling to switch prime brokers or increase the number of their prime brokers (TABB report). As Michael Guarasci, partner at hedge fund Indus Capital Partners said, "We have long-standing relationship with our prime brokers, so if a new company wants to come in and do business with us, it may not get anywhere because we're pretty happy with our service. It's not easy to switch prime brokers." (full article). Now more and more hedge funds are adding prime brokers to limit counterparty risk since the fall of Bear (ref). This created considerable opportunity for new players to enter or existing players to take a bigger piece of the market share, as pointed out in an article by Merrill Lynch: "The multi-prime broker environment overcoming the challenges and reaping the benefits" (download the pdf).

Interested in learning more about prime brokerage. Please checkout the new website - http://PrimeBrokerageGuide.com.

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Tags: Prime Brokerage Market Share, Prime brokerage rankings, prime brokerage market share figures, prime brokerage, trading, prime broker, prime brokers

Prime Brokerage Hedge Fund Administration

Richard C. Wilson — Tue, 02 Sep 2008 12:57:17 +0000

Prime Brokerage + Administration

Prime Brokerage & Hedge Fund Administration

More prime brokerage firms are adding on administration services to help attract and retain clients. I wasn't sure how widespread of a trend this was but saw this mentioned within an article yesterday as noted below. I would be interested in discussing this further with hedge fund managers reading this article - if you have some insight - Richard@HedgeFundGroup.org.
__________________

In recent years, the custodian banks that have acquired hedge fund administrators have sought to adjust client lists in favor of larger and more profitable hedge fund and fund of funds groups interested in a broader array of services. At the same time, prime brokers have recognized that providing administration services can help attract and retain clients and counter the shift among hedge fund managers towards multiple prime brokerage.

"It would be surprising if the hedge fund administration industry continues to support such a large number of providers, and there is now evidence that a renewed round of consolidation is in the offing," says Dominic Hobson. "However, the appetite to sell may be offset as well as encouraged by the depressed prices available. In any event, the buyers are likely to be different from the banks which dominated the acquisition process in the early years of this century." Read more...

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What Happened to Bear Stearns Explained Simply Part 2

Videos by InformedTrades — Fri, 21 Mar 2008 06:16:18 +0000

Author: InformedTrades
Added: Thu, 20 Mar 2008 22:16:18 -0800
Duration: 306

http://www.informedtrades.com/trades.php?page=course3 The second lesson in a series on what happened to Bear Stearns going into prime brokerage, the federal reserve's role, and JP Morgan Deal.