MORGAN STANLEY failed to stop its shares sliding five per cent yesterday, even though it denied being investigated by US authorities over the sale of mortgage-backed securities.
A report by the Wall Street Journal claimed the investment bank was being probed by the Securities and Exchange Commission and the Manhattan US Attorney’s office over its role designing and betting against portfolios of toxic home loans.
The report said Morgan Stanley helped put together two collateralised debt obligations (CDOs) known as the “Dead Presidents” deals because they were named after two 19th century US leaders, James Buchanan and Andrew Jackson. Morgan Stanley is said to have used its internal traders to bet against the CDOs, which were marketed to investors by Citigroup and UBS.
The bank immediately denied the allegations. Chief executive James Gorman said: “There is no reason to believe that there is any substance behind any supposed investigation.”
The bank said it had not been served a Wells Notice, necessary before the SEC brings charges, and had not been contacted by the US Department of Justice. Sources close to Citigroup and UBS also said they were unaware of an investigation.
But nervy investors ran for cover, fearful of a repeat of the SEC’s case against Goldman Sachs which wiped $12bn (£8.1bn) off Goldman’s market capitalisation. Shares in Morgan Stanley fell as low as $26.86 in morning trading before settling two per cent down at $27.80.