The term 'Morgan Stanley' is included in the Banking edition of the Financial Dictionary. Get your copy on Amazon in Kindle, Paperback or Audio edition. Check for lowest price here...
Morgan Stanley is one of the two major American investment banks (along with Goldman Sachs) that survived the financial crisis of 2008/2009. It is an international financial services company that has headquarters in New York City in the Morgan Stanley Building. The firm has over 1,300 offices and employs around 60,000 staff. The group has operations in 24 countries. The company boasted $1.454 trillion in assets under management for 2014. This impressive figure represented a gain of 17.5% over the 2013 numbers.
The investment bank originally arose on September 16, 1935 as a venture of the partners of J.P. Morgan & Co, Henry S. Morgan (grandson of legendary J.P. Morgan) and Harold Stanley. The company was forced to split off its investment banking business from the commercial bank operation because of the Glass Steagall Act. This first year of the new investment bank saw it gain a 24% market share of both private placements and public offerings, amounting to $1.1 billion at the time.
These days Morgan Stanley offers financial institutions, governments, and individuals investment products and services. Today the firm has three principal areas of business. These are Institutional Securities, Global Wealth Management, and Investment Management.
In recent years, the Institutional Securities division has proven to be the biggest profit maker for the company. This component offers services like raising capital and financial advising services to institutions. This includes help with restructuring, advising mergers and acquisitions, corporate lending, and project and real estate financing.
Global Wealth Management delivers the company’s investment advising and brokerage services and products. The present division came about when the group’s wealth management merged with Smith Barney. Citigroup originally held a 49% stake in this joint venture until Morgan Stanley bought out its stake entirely. The segment offers high net worth clients wealth planning and financial services.
The group’s Investment Management division offers products and services for asset management across a variety of asset classes. These include fixed income, equity, real estate, alternative investments, and private equity. Both retail and institutional clients are able to participate in these offerings that the group delivers through their institutional distribution network, intermediaries, and third party retail distribution networks.
During the financial crisis, the firm swung bank and forth between hero and victim in the saga that rocked traditional banks and investment banks to their core. The U.S. Treasury originally contracted them to provide advice on a possible means of rescuing Freddie Mac and Fannie Mae in August of 2008.
Yet the company itself proved to be in trouble as its market value plunged more than 80% between 2007 and 2008. As its stock price continued to slide and the company suffered heavy losses on home building related companies, it began to consider merger possibilities with a variety of other banks. Among these were HSBC, Standard Chartered, Wachovia, Citigroup, Nomura, and Banco Santander. When the investment bank fell into serious trouble during the height of the financial crisis, Treasury Secretary Hank Paulson offered to hand Morgan Stanley over to JPMorgan Chase for free. CEO Jamie Dimon turned down the offer.
On September 22, 2008, Morgan Stanley and Goldman Sachs the last of the big American investment banks declared they would change into traditional bank holding firms which the Federal Reserve would regulate. The Fed approving this bid to become traditional banks brought an end to the power of the securities firms 75 years after the events that segregated them from traditional lenders. It also ended a number of weeks of market chaos that had caused Lehman Brothers to file for bankruptcy and Bank of America to rush purchase Merrill Lynch & Co.
Ultimately Morgan was saved both by a $107.3 billion loan from the Federal Reserve, which represented the largest loan taken by any bank, along with a $9 billion investment by largest Japanese bank Mitsubishi UFC Financial Group.