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Morgan Stanley sells stake to China and posts loss

Financial newsChina has agreed to pump $5 billion into Morgan Stanley as the U.S. investment bank reported a stunning fourth-quarter loss fueled by $9.4 billion of losses in subprime mortgages and other assets.

Morgan Stanley took a $9.4 billion charge on subprime-linked investments for the fourth quarter, bringing its cumulative charges for subprime mortgages to $10.8 billion.

Wall Street banks have recently reported more than $40 billion of losses as a result of the crisis in the mortgage market. Worst-case estimates put the eventual bill at $200 billion or more. The tally is likely to rise again Thursday when Bear Stearns is expected to report a quarterly loss.

Like Citigroup and UBS, Morgan Stanley has turned to a wealthy investor from the East after losing billions of dollars on subprime-tainted investments. Morgan Stanley lost $3.59 billion for the 4Q. It said its remaining subprime exposure was $1.8 billion.

Mr. Mack said that the bulk of the $9.4 billion loss occurred on one trading desk and that other areas of the firm, particularly the investment banking, asset management, retail brokerage and hedge fund servicing businesses, performed well.

Still, the investment shows how reliant Morgan Stanley and Wall Street are on foreign funds and gives additional credence to the joke now circulating on trading floors: "Shanghai, Dubai, Mumbai or goodbye." The China Investment Corporation has agreed to purchase almost 10% of Morgan Stanley. It will have no role in the management of the firm.

Source: Reuters
Date: 21.12.2007 [156]
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