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October 16, 2011

On the Farm, Morgan Stanley was at Sea

“The New York bank — flush with $7.5 billion in fiscal 2006 profit, the biggest in its history — was going to be farming 11 parcels on the steppes of Ukraine.”

“Morgan Stanley was primed for the investment. It was then the second-largest U.S. securities firm by market value, after Goldman Sachs, and chief executive John Mack was pushing managers to take more risks.”

“Morgan Stanley’s failed gamble in Ukraine is an example of how Wall Street firms, in the last gasp of a debt-fueled bull market, strayed further from their traditional business of advising companies and underwriting stock sales to embrace diverse projects with unfamiliar risks.

By 2007, banks’ investments ranged from casino development to mortgage lending in Russia. That year, the five major U.S. investment banks had only $1 in capital for every $40 of assets, meaning a 3 percent drop in asset value could wipe out a firm, according to a January report by a congressionally appointed panel probing the 2008 credit crisis.”

Read the full story here.

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