Morgan Stanley Begins Wall Street Commodity Derivatives Wipe-out

Morgan Stanley, the Wall Street bank which has had the deepest involvement in owning oil and other energy commodities while trading derivatives in them, has become the first to show the tsunami coming at Wall Street from the collapsed oil price.

Morgan Stanley’s earnings, reported Jan. 20, were sharply down, like those of all the Wall Street banks, falling by $600 million, or more than 8% from the previous year. And like the rest of Wall Street, its trading revenue dropped by much more than that, 14.1%, from about $700 million to about $600 million. The revenue results for Wall Street banks were called the worst in eight decades by a bank analyst Jan. 19.

But Morgan Stanley’s were worse. The bank “excluded” from this drop in trading revenue, “a $468 million charge from changing the valuation of some over-the-counter derivatives,” according to Bloomberg’s review of the bank’s report. In other words, Morgan-Stanley’s trading revenue was actually almost nil in the fourth quarter, because they lost $468 million covering their commodity derivatives exposure. Much more of this is to come, across Wall Street.