Morgan Stanley Cuts Home Equity Lines of Credit

Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals
By Christine Harper

Aug. 6 (Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won't be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation.

Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn't public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on, the person said yesterday.

Wall Street firms including Morgan Stanley are ratcheting back on risks after the collapse of the subprime mortgage market and ensuing credit contraction saddled banks and brokerages with almost $500 billion of writedowns and losses. Consumers fell behind on home-equity credit lines at the fastest pace in two decades in the first quarter, the American Bankers Association reported last month.

``Morgan Stanley periodically reassesses client property values and risk profiles,'' said Christine Pollak, a Morgan Stanley spokeswoman in Purchase, New York. ``A segment of clients was recently notified of a change in the status of their home- equity line of credit, or HELOC, due to a change in the value of their property and/or their credit profile.''

Pollak declined to specify the dollar amount of the frozen credit lines. The firm's global wealth management division, which doesn't disclose how many clients it serves, had 8,350 advisers managing $739 billion of customer assets at the end of May, according to its second-quarter earnings report.

No Recovery Seen

``It's evidence that they don't think the economy is going to recover quickly,'' said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York who rates Morgan Stanley shares ``outperform'' and who owns some of the stock. ``The fact that they're trying to get ahead of the problem is very good.''

Morgan Stanley has already taken about $14.4 billion of losses related to leveraged loans and collateralized debt obligations. The clampdown on home-equity loans mirrors similar efforts by commercial banks, said David Hendler, an analyst at Credit Sights Inc. in New York.

``All consumer lenders and home-equity lenders are reassessing the environment given the pressure on housing and the economy,'' Hendler said....

Here Come the Waves of Credit Defaults, Deleveraging, and Recession

Its called an economic contraction. The US is in a serious recession, much more serious than the headlines will allow because of the significant understatement of inflation in the chain deflator, worse even than the CPI. The government and financial sector is acting with reckless disregard for the welfare of the country by silencing all the alarms one used to be able to rely upon to protect themselves and make sound personal and business decisions.

Credit Card ABS Locking Up: Report
By: PAUL JACKSON
August 5, 2008
HousingWire.com

Here it comes: the spillover from subprime mortgages that many secondary market participants had hoped not to see looks increasingly as if it may finally be coming home to roost. A published report Tuesday morning noted that the credit card ABS market is locking up, as investors pull back from the sector and more borrowers begin to default on their consumer credit debt.

The Wall Street Journal, citing data from JP Morgan Securities, said that issuance of credit card ABS fell to $4.4 billion during July, off from $5.26 billion in June and less than half of the $10.1 billion issued in March. A report by JP Morgan structured finance analysts said that deal flow has “slowed considerably” — and, adding insult to injury in the latest xBS market to falter, those deals that are coming to market are taking longer to do so.

Adding to investor fears in the credit card sector was an August 1 report by Citigroup Inc. with the Securities and Exchange Commission that saw the fourth-largest credit card issuer post a $176 million loss in credit card securitization activity during the second quarter.

Overall U.S. ABS issuance slowed to a crawl, totaling just $8.6 billion in July according to industry trade publication Asset Backed Alert; so far this year, ABS issuance has totaled just $123.5 billion.

Last year at this time, total U.S. ABS issuance was $465.8 billion. Forty-two percent of U.S. ABS issuance this year has been in the form of credit card debt, the largest percentage of ABS (which also includes auto financing, student loans, and the like).

July’s abysmal ABS issuance total was the worst since December 2007, and the second worst in more than 9 years; and it’s led more than a few market participants to wonder what’s next in a capital market that has been reeling from the effects of the mortgage crisis for more than a year now.

“One has to wonder if the subprime thing wasn’t just an underwater event out in the ocean and now the tsunami waves are rolling in, one after another,” said one of HW’s sources, an MBS/ABS analyst, via email on Tuesday morning.

When the Going Gets Weird, the Weird Turn Pro

We just don't have the words.

Morgan Stanley to Advise U.S. Department of the Treasury Regarding Fannie Mae and Freddie Mac


NEW YORK -- (Business Wire) --

Morgan Stanley (NYSE: MS) confirmed today that it has been

retained by the United States Department of the Treasury to provide

capital markets advice to support the Treasury's responsibilities

associated with its new authorities regarding Fannie Mae and Freddie

Mac. As part of that assignment, Morgan Stanley will support the

Treasury's work to promote market stability and the availability of

mortgage credit.


Morgan Stanley Chairman and Chief Executive Officer John J. Mack

said, "Morgan Stanley is honored to have been asked to serve as

financial advisor to the U.S. Treasury as it evaluates various

alternatives for Fannie Mae and Freddie Mac. We are pleased to be able

to offer our services to the government and look forward to working

with Secretary Paulson and his team as they work to restore stability

to the global capital markets and confidence in the U.S. housing

market." Morgan Stanley will accept no fees for this assignment and will

receive only $95,000 from the Government toward its expenses.

($95,000 for expenses? That's a lot of Taittinger at The Palm and VIP lapdances at Camelot. Or are we talking something a little more Spitzeresque? We'll take that job in a Manhattan minute for free. It would put a certain 'edge' to our blog. Think about it Hank. - Jesse)

The Message of the Markets

Today's market action looked like a major Wall Street insiders push to break the traders/funds who were playing the long oil-long metals - short dollar-short financials cross trades. They were leaning awfully hard on them.

Just as an update we took down our short oil - long gold cross trade the past couple days. We wanted to be in a stronger cash position to be a able to move quickly in case some things unfold as we expect they might.

The volumes are just not there so far to justify this run up in the stock indices. The Fed did not do anything today to justify a 300+ point rally. The spin on financial television is running hard from the 'chief strategists.' Wall Street wants to get the market up and offload more shares to mom and pop to further damage the economy for their own benefit. That's what they do. This is why our economy is sick. It is being run by shills and gamblers for the benefit of 'the house.'

We will be very surprised if the market does not sell off tomorrow, but we have an open mind and will start considering the notion of government intervention which could sustain a prolonged 'reflation rally.' If the Fed and Treasury can get behind this in a meaningful way then all bets are off.

But for now this just looks like the Wall Street wiseguys peeking at the other players cards from their seating vantage points as insiders and limit raising the bets against the prevailing trades on the trend fundamentals. If this is the case, the prior trends should reassert themselves within the week. If not, then we might be in a new ballgame.

We will WAIT for a sign that this is the case, although we did put on a few Sept. Index shorts into the close. There is no point jumping in front of this in case it is something more profound than just the usual Wall Street shenanigans.