Morgan Stanley carries $2.3bn subject to Volcker Rule

The New York-based bank plans to request additional extensions for the vast majority of the $2.3 billion investments while considering other options, such as secondaries sales.

Morgan Stanley, the US’s sixth largest bank by assets, still has about $2.3 billion of investments subject to the Volcker Rule, according to chief financial officer Jonathan Pruzan, who was speaking during the firm’s third-quarter earnings conference call last week.

It is unclear whether the figure includes the $1 billion to $2 billion of fund interests in private equity, real estate and infrastructure funds that the bank is trying to unload through a secondaries sale, as previously reported by sister title Secondaries Investor at the beginning of the month.

Morgan Stanley plans to request extensions for the overwhelming majority of those assets and will at the same time consider other options to dispose of them, including secondaries sales.

“We continue to consider various alternatives to be in compliance with the rule, including sales, redemptions, and liquidations where the amounts we ultimately realise on these investments may be less than their current carrying values,” Pruzan said during the call.

The Volcker Rule, a section of the US 2010 Dodd-Frank Act, restricts banks from trading off their own accounts and limits their investments in private investment funds to no more than 3 percent of the bank’s Tier 1 capital.

The rule, which gives the US Federal Reserve three possible one-year extensions for all banks to meet the requirements, was finalised in December 2013. That same month, the Fed made its first extension, to 21 July 2015; a second came in December 2014, marking a new deadline of 21 July 2016. The third and most recent extension occurred during this year’s second quarter, to 21 July 2017.

A Morgan Stanley spokeswoman declined to comment.

Morgan Stanley also manages funds raised with third-party capital. As previously reported by Private Equity International, Morgan Stanley’s North Haven Capital Partners VI had raised $1.09 billion as of July. 

The fund, which was previously called Morgan Stanley Capital Partners VI, is targeting $1.5 billion, according to PEI data. The bank renamed the fund in April 2015 to adhere to another Volcker Rule requirement that banks not include their own name for the funds.

In August, PEI reported that fellow bulge bracket bank Goldman Sachs still had $6.4 billion to offload to meet the requirements of the Volcker Rule by the July 2017 deadline.