The Real Deal Miami

Morgan Stanley borrowed $107.3B from the federal reserve

August 23, 2011 03:21PM

Morgan Stanley, which just kicked off the sale of its mortgage servicing arm and partnered with the Witkoff Group at a Broadway condominium conversion project, borrowed $107.3 billion from the Federal Reserve in 2008, the most of any bank, according to data compiled by Bloomberg News using information released in response to Freedom of Information Act requests, related court orders and an act of Congress.

An examination of the Fed’s emergency lending reveals how close Morgan Stanley came to bankruptcy because of a run on its prime brokerage, the unit that finances hedge funds’ trades, Bloomberg reported.

“Prime brokerage was presumed to be a pretty secure business, where the funding was not actually part of the liquidity of the bank,” said Frank Suozzo, president of advisory firm FXS Capital in Goldens Bridge, N.Y. “So if clients pulled their money out, the view was that money had not been lent out, so the cash would have been sitting there able to hand over. It turns out that that was not entirely correct.”

Mark Lake, a spokesperson for Morgan Stanley, declined to comment on the bank’s current hedge-fund balances.

“The financial crisis of 2008 caused the industry to fundamentally re-evaluate the way it manages liquidity,” Lake said. “We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward.” [Bloomberg]