Hedge fund chief warns of worse to come
By Ben White and Francesco Guerrera in New York
and Henny Sender in Monaco
Published: June 18 2008 13:25 |
Last updated: June 19 2008 01:50
A hedge fund manager who made some of the biggest profits from the global credit crisis said on Wednesday there was worse to come as evidence mounted that banks are struggling to regain their earnings power and properly value their assets.
Morgan Stanley said second-quarter profits plunged 60 per cent to $1bn and would have fallen further without $1.4bn in one-time asset sales, while revealing that it had suspended a suspected rogue trader for allegedly mismarking positions by $120m.
Thornburg Mortgage said the Securities and Exchange Commission had issued subpoenas in its investigation of a 2007 earnings restatement.
In another case, prosecutors prepared to file criminal charges as soon as today against two former Bear Stearns hedge fund managers in a case that raises questions about how they valued assets.
The events will only stir a growing debate about whether financial institutions have taken big enough markdowns on mortgage-related holdings or could still face billions more in losses.
John Paulson, president of Paulson & Co, who made billions for himself and his investors by anticipating the subprime meltdown, said mortgage-related losses for troubled financials could be $1,300bn, compared with writedowns so far of $380bn, which suggests that shares of these institutions could fall further.
“The housing market shows no signs of stabilising and the problems will spread to other areas, including non-residential construction and consumer spending,” Mr Paulson said at a conference in Monaco.
The problem spread in the US on Wednesday as Ohio’s Fifth Third bank said it would slash its dividend and raise $2bn in capital to offset mortgage losses.
Morgan Stanley, meanwhile, said revenues fell sharply at its core advisory and underwriting businesses and bad real estate deals led to a $227m loss in asset management. Fixed income sales and trading revenues fell 85 per cent to $2.7bn after a bad bet on oil prices and the $120m charge attributed to the suspected rogue trader.
Excluding the one-time asset sales, Morgan Stanley’s earnings came in well below analyst expectations. Susan Roth Katzke, Credit Suisse analyst, called the trading losses and portfolio mismarking “disappointing and disconcerting”.
The results came after Lehman Brothers said it lost $2.8bn in the second quarter...
http://www.ft.com/cms/s/0/6e935eac-3d31-11dd-bbb5-0000779fd2ac.html
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> longer to unfold than initially thought]
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