Morgan Stanley Prime Brokerage Loses One-Third Of Assets

Sep 29 2008 | 9:06am ET

Morgan Stanley’s prime brokerage lost almost one-third of its assets last week amid fears that the Wall Street giant would face a Lehman Brothers-style collapse.

Several clients have indicated they are likely to return to the fold now that the firm has become a bank holding company regulated by the Federal Reserve, and with a U.S. government bailout of Wall Street imminent. But the loss of hundreds of billions in prime brokerage assets—including about half of its assets in London—may cripple one of Morgan Stanley’s most profitable divisions. Just 10 days ago, only 10% of the firm’s hedge fund clients had pulled their money or announced plans to do so.

Hedge funds are no longer fleeing Morgan Stanley in such great numbers, with the cash outflow slowing to a trickle, the Financial Times reports.

Among the beneficiaries of Morgan Stanley’s woes are Barclays Capital, Citigroup, Credit Suisse, Deutsche Bank, JPMorgan Chase and UBS. Morgan Stanley had pushed executives at other banks not to make a play for its clients as it struggled to survive this month, though competitors said marketing their services did not prove necessary.

“We didn’t have to call them,” one told the FT. “They called us.”

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