Morgan Stanley Failed $ 6.5 Billion Commercial Real Estate Flip......

SCHADENFREUDE! This story rivals almost the latest CRE epsiode from Deutsche Bank ( see Deutsche Bank Is Doubling Down In Vegas..... )

SCHADENFREUDE! Das nimmt es sogar mit der letzten Episode der Deutschen Bank auf ( siehe Deutsche Bank Is Doubling Down In Vegas..... )

Morgan Stanley's Waning Crescent WSJ
Real-Estate Deal May Lead to More Write-Downs -- And Shareholder Griping
When Richard Rainwater, the renowned Texas investor, sold Crescent Real Estate Equities Co. to Morgan Stanley for $2.78 billion early last year, some Crescent shareholders complained the price was too low.

Now it looks like Morgan Stanley's shareholders are the ones who should have been griping.

Morgan Stanley, one of the largest real-estate investors among Wall Street firms, originally planned to put Crescent's office buildings, resorts, housing projects and other properties in one of the real-estate funds it manages for institutions and wealthy individuals.

But the firm decided to keep what is now $4.6 billion of assets on its balance sheet instead, exposing Morgan Stanley to potential losses. The company didn't disclose the value of the assets at the time, but the overall deal was valued at $6.5 billion, including the assumption of $3.1 billion of debt.

The reason? Morgan bought Crescent before the credit crunch hit and commercial-real-estate values started to fall. It was also before Morgan was able to launch the fund that it hoped would own the properties. That left Morgan trying to persuade investors to buy into a fund including properties with top-of-the-market prices, something Morgan was unable to do.

A Morgan Stanley spokeswoman declined to discuss Crescent. In a securities filing, the firm cited "current market conditions, valuation, size of the investment and timing of the fund" as reasons why it held onto Crescent.

'Peak-Market Price'
"It's likely that investors didn't want those properties or Morgan Stanley couldn't distribute those properties into the fund at a price that investors were willing to pay," says Cedrik Lachance, an analyst with Green Street Advisors Inc., a Newport Beach, Calif., real-estate research and trading firm. "Investors didn't want to pay the peak-market price."

Morgan Stanley marked down the value of the Crescent properties by $150 million in its fiscal second quarter ended May 31, deepening losses for its asset-management business. Additional write-downs are likely if commercial-property values keep declining.

> Click to see more details of the Cresent Portfolio.... Looking at the locations it is almost guaranteed that a massive write down is already in the cards.... But with Level 3 assets and their "unique" underlying models you never know..... :-).

> Hier geht es zum Cresent Portfolio... Alleine der Blick auf die Karte genügt um zu erkennen das die Immobilien in den zum Teil besonders überhitzten Teilen des Landes stehen. Die nächste massive Abschreibung ( und ich meine damit eine richtig schmerzhafte ) dürfte damit bereits in Stein gemeißelt sein. Obwohl man bei der ganzen Level 3 Bilanztrickserei da heutzutage nicht sicher sein kann.....

The Crescent deal is yet another example of the damage being done to Wall Street firms by their aggressive push into commercial real estate when money was easy and prices were rising. Lehman Brothers Holdings Inc. has been hammered by ill-timed investments in California land and New York City apartment buildings. Commercial banks Wachovia Corp. and Bank of America Corp. have high exposures to deteriorating construction loans.

So far, Morgan Stanley's reported real-estate losses have been relatively small. The firm has significantly reduced the amount of commercial-real-estate debt on its balance sheet without taking the sort of painful write-downs that rivals have.

Morgan Stanley made headlines late last year when a venture led by the firm bought 11,000 house lots from home builder Lennar Corp. for $525 million, about 60% less than where Lennar carried the land on its books. While that land has likely fallen further in value, Morgan Stanley isn't at risk. The firm was able in that case to put the holdings in an investor fund, according to people familiar with the matter.

Morgan Stanley has been one of the most active real-estate fund managers. As of June 30, the New York company had $96.4 billion in real-estate assets under management, according to the firm. Morgan Stanley is about to close an approximately $1.5 billion commercial-real-estate debt fund and is in the process of raising a global real-estate fund with $10 billion in targeted equity capital, according to Real Estate Alert.

Bear, Lehman, Merrill, Goldman Traded as Junk, Derivatives Show

Now we have gone from almost junk in March to finally junk. We will see if the rating agencies are correct in giving all the players still very high investment grade ratings. S&P has taken the lead with yesterdays action on Morgan Stanley.

GS & co sind über fast Junk im März nun bei Junk angelangt. Wir werden sehen ob die Rating Agenturen mit Ihrer Einschätzung der hohen A und AA hier richtig liegen.

S&P raises Morgan Stanley debt rating to "AA-minus".
Standard & Poor's on Monday raised its debt rating for Morgan Stanley, citing strength in the bank's core investment banking and trading businesses.

S&P raised Morgan Stanley's senior unsecured debt rating to "AA-minus," the fourth highest investment grade rating, from "A-plus."

>At least for now the market has spoken.......

>Momentan sieht der Markt das etwas anders.......


Thanks to benj

July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.

Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show.

bigger/größer

Thanks to Kevin Duffy / LewRockwell

The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.


Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, rose to about $110,000 on July 27, from $30,000 at the start of June, indicating growing investor concerns.

`Wall of Worry'
Prices of credit-default swaps for Goldman, the biggest investment bank by market value, Merrill, the third largest, and Lehman, the No. 1 mortgage bond underwriter, also equate to a Ba1 rating, data from Moody's credit strategy group show. Bonds of New York-based Goldman and Merrill are rated Aa3, seven levels higher than swaps suggest. Lehman is rated A1, the same as Bear Stearns.

About 1 percent of the thousands of companies followed by Moody's have a gap of more than five levels between their actual and implied rankings, analyst Tony Smith said in a July 19 report titled ``Broker Securities Climb a Wall of Worry.''

> Here is another one

Losing Value
Investment-grade bonds of brokerage firms lost 0.47 percent on average since June, while securities with similar ratings returned 0.19 percent, according to Merrill indexes. Finance companies are the biggest part of the corporate bond market, accounting for 40 percent of the $2 trillion of debt outstanding, according to New York-based Morgan Stanley, the second-biggest investment bank by market value.


Investors demand an extra 1.25 percentage points in yield to own the bonds of brokers instead of Treasuries, up from a low of 0.64 percentage point on Jan. 29. The wider spread represents an extra $6 million in annual interest for every $1 billion they borrow. ....

Bond and credit-default swap prices suggest Wall Street firms are no safer for debt investors than companies teetering on the edge of investment grade, including mining company Freeport-McMoRan Copper & Gold Inc. in Phoenix and Stamford, Connecticut-based copy machine maker Xerox Corp.


Pimco Buys
Pimco bought bonds of banks and brokers in the past two weeks, expecting them to sustain earnings growth and benefit from global mergers and acquisitions, Kiesel said. Profits at Bear Stearns will rise to $14.53 a share this year and $15.66 in 2008 from $14.27 in 2006, according to the average estimate in a Bloomberg survey of 16 analysts.

> I know that bond manager have a different view than equity investors and i respect kiesel. He has written some great reports like "still renting" but to assume that Bear Stearns will have any increase in earnings is just nuts. Bear is the most dependend on the US bondmarket and has almost no international exposure. The only way is able to increase their earnings is to "exclude" special items like losses in subprime exposure. But this would be like GM exclusing losses from their SUV´s.....But i will not rule out that this time we will see new ways of hiding bad numbers :-)

> Ich weiß das Bondinvestoren ein anderes herangehen als Aktieninvestoren haben und ich mag Kiesel von Pimco wirklich sehr. Er hat einige großartige Reports verfasst. Wie man aber allen ernstes darauf kommen kann das ausgerechnet Bears Stearns auch nur annähernd einen Gewinnzuwachs ausweisen kann ist mir schleierhaft. Bear ist die Bank die fast ausschließlich vom US Bondmarkt abhängig ist und kaum internationales Geschäft vorweisen kann. Der einzig mir denkbare Weg Zuwächse zu erzielen ist indem man zum beliebten Mittel greift und "special items" hearusrechnet. Das wäre in diesem Fall aber so als wenn man bei GM die Verluste der SUV´s herausnehmen würde....Das heißt nicht das dies in den USA nicht möglich ist :-)

Marking Down
Bear Stearns analyst Ian Jaffe raised his recommendation on broker debt to ``overweight'' from ``underweight'' on July 13 because risk premiums increased and the economy is growing. Jaffe, who is based in New York, declined to comment.

CreditSights Inc., an independent bond-research firm in New York, also says investors should buy broker bonds.

Disclosure: Short GS, long UBS