Morgan Stanley’s writedowns bring us to a cool $1 trillion

Morgan Stanley released a dismal earnings report one day after Goldman’s.  Obviously this is shaping up to a be a very bad quarter for financial institutions.  Morgan’s $2.2 billion loss was certainly less than Goldman’s but very large nevertheless.  And it brought us to $1 trillion in losses by global financial institutions since the credit crisis began way back in February 2007 with HSBC’s subprime writedowns.

In the article form Reuters below, you will notice the losses are in more risky areas of Morgan Stanley’s business.  Their risk profile has obviouslyincreased in the last few years.

Morgan Stanley, which has converted to a bank holding company from an investment bank, said it was targeting an additional $2 billion in cost savings, although that figure includes the annualized effect of previously announced job cuts.

The firm’s asset management unit was hit with a $1.8 billion pretax loss after markdowns on principal investments and as assets under management declined.

‘IRRATIONAL PRICING’

Markdowns on leveraged loans contributed to $1.1 billion in trading losses, while virtually every one of the bank’s major businesses — from underwriting to trading — suffered revenue declines from a year earlier.

“Nobody expected November to be as bad as it was,” Morgan Stanley Chief Financial Officer Colm Kelleher said in a telephone interview, adding that asset values in the month were hammered by what he called “irrational pricing.”

Nobody expected November to be as bad as it was? Hmmm…. I’m not sue that is a true statement. In any event, Goldman and Morgan Stanley fittingly helped us get to the $1 trillion mark in credit writedowns.

Losses and writedowns from the credit crisis surpassed $1 trillion today, and show little sign of ending, as Morgan Stanley marked down the value of mortgages and leveraged loans.

Morgan Stanley and Goldman Sachs Group Inc.’s markdowns this week bring losses by financial firms in the U.S. to $678 billion since last year, while European banks and insurers have written down a further $300 billion, according to data compiled by Bloomberg. Firms have raised about $928 billion to replenish capital, and cut about 239,000 jobs across the industry.

The losses have caused bank failures from the U.S. and the U.K. to Germany and Iceland, forcing governments to increase borrowing and buy stakes in financial companies. The U.S. alone is spending $700 billion, almost half of which will go directly into banks and insurers, in what has become the worst financial crisis since the Great Depression.

“You’re up to $1 trillion now and this is still going to run for some time,” said Charles R. Morris, a former banker and software company executive whose book “The Trillion Dollar Meltdown” was published in March. In Sept. 2007 “the first back-of-the-envelope calculation I did came up with $1.1 trillion and this was using really low-default estimates.”

The financial services sector has a long way o go before this pain finally comes to an end.

Sources
Morgan Stanley posts loss on writedowns; stock off – Reuters
Credit Crisis Cost Tops $1 Trillion With Morgan Stanley’s Loss – Bloomberg