MORGAN STANLEY - BIG BALANCE SHEET LOSSES HIDDEN BEHIND EXOTIC DERIVATIVES CURTAINS (AGAIN)? - JustDario: When you’ve spent enough time trading inside a bank and watching markets for hours a day, in my case I traded my first stock when I was 11, sometimes you’re able to spot if something suddenly starts behaving weirdly. This is exactly what happened with Morgan Stanley ($MS) in the...
A few minutes after trading began someone, somehow, had the urge to dump 4.3M $MS shares sending $MS stock straight to 85$. To give you an idea, $MS DAILY average volume in the past 3 months, before the last session, was about 8.3M shares. How many $MS shares have been traded in total during the last session? 23.2M of them with $MS stock ending the day down 3.88% (and it would have been almost 5% if a rescue bid didn’t come through at the end of the day).
THE INCREASE IN TRADING ASSETS PLEDGED AS COLLATERAL YOY EQUIVALENT TO ~38bn$ FROM $MS TO 3rd PARTIES IS THE SAME AS THE DECREASE IN CASH
... the increase of collateral posted by $MS to 3rd parties is almost equivalent to the maximum loss $MS can incur this year for all the $CDS they sold! And these 42bn$ of troubles are not the whole story.
despite a banking crisis at the beginning of 2023 and a no-stop deterioration of risk for the whole year, $MS sold 66bn$ more in CDS through the year
In theory, from 2022 to 2023, $MS bought more $CDS to hedge its books
for 68bn$ equivalent right? How much would $MS have paid for it? In
Table 4.2 we can see that comparing 2022 with 2023 that amount is ~6bn$
and the change in fair value to 5bn$ negative effectively turns these
assets into a liability 🤨? Hold on, that’s bad right? So how would you
compensate for that? Turning liabilities into assets of course! 🤣 As
you can see in Table 4.3 $MS credit protection sold (a liability in
theory) does now have a positive value that, of course, matches the one
of the CDS purchased.
I conclude this post with a question, if $MS is so good at managing
its $CDS exposure and overall risks why are they bleeding cash and their
counterparts are running on them for collateral?
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