Private equity write-downs plague Morgan Stanley results

The former investment bank, which has applied to become a bank holding company, took a loss of $1.8bn in its asset management division, which includes private equity and real estate businesses.

Morgan Stanley’s merchant banking division took $355 million in losses this year driven by a $100 million in write-downs in its infrastructure, real estate and private equity investments. That compares to positive revenues of about $2.2 billion in 2007.

Morgan Stanley lost $100 million in its private equity funds, particularly in Asia, and in its infrastructure and real estate funds, according to Morgan Stanley’s chief financial officer Colm Kelleher. He said during an earnings call that the losses were caused in part by the general market deterioration, especially in the real estate market.

The bank closed a $4 billion infrastructure fund called Morgan Stanley Infrastructure Partners in May and has reportedly been raising a $6 billion buyout fund. The bank last year raised a $1.5 billion Asia-dedicated private equity fund, Morgan Stanley Private Equity Asia III. 

The losses in merchant banking were part of broader losses in the bank’s asset management division, which posted pre-tax declines of $1.8 billion in 2008, compared with pre-tax income of $1.4 billion last year. Net revenues in the asset management division of $1.3 billion declined $4.2 billion, or 76 percent, from 2007.

Fourth quarter declines in merchant banking exceeded losses for the full year. Net revenues in merchant banking were negative $454 million, down from $505 million in the fourth quarter of 2007.

The bank’s private equity arm invests in large and mid-market transactions on a global basis on behalf of its clients. Morgan Stanley’s private equity unit has invested in more than $6 billion worth of transactions since it was established in 1985.