Did Morgan Stanley sell itself short over HBOS?
You are the chief executive of a major company desperate for a rights issue to shore up its finances, and prepared to pay hefty fees to an investment bank willing to act as underwriter. Do you hire Morgan Stanley? There must be a few bosses who would give a resounding “no” after what happened last week. Hours after HBOS’s turbulent £4 billion rights issue closed, Morgan Stanley’s trading desk – a separate lot from the bankers overseeing the fundraising – shorted the shares with venom. Morgan is believed to have made tens of millions in the process, more than wiping out the loss it was sitting on as underwriter of a disastrous rights issue. Its traders broke no rules. Indeed, this looks like an occasion when those Chinese walls the banks go on about actually worked. The investment bankers must have been tempted to wander over to the trading desk and say: “Don’t short the shares of one of our biggest clients. It just looks bad and will probably cost us all in the long run.” They can’t, a
