Morgan Stanley scales back ex-Japan Asia ABS franchise

Details have emerged on significant cuts to Morgan Stanley's regional securitization coverage. The bank confirmed to FinanceAsia that the four members of the specialist ex-Japan Asia team - based in Tokyo but focused on other markets - headed by Cheng-Yi Tong, were actually let go at the end of last year, despite there being no official announcement of the move.

A source explained that the job losses were part of a general restructuring at the investment bank, but insisted that Morgan Stanley was not writing off securitization markets outside of Japan.

"Because of the current environment, a number of people left the firm last year and this was related to that," the source says. "This does not however mean that Morgan Stanley will no longer cover the non-Japan Asian securitization markets. The bottom line is that we will continue to seek opportunities when they present themselves, it will just be a different group of people doing it."

Despite the bank's protestations, its competitors see the losses as a withdrawal from the region for the time being. "You do not get rid of people if you are committed to the business," comments one head of Asian ABS in Hong Kong. "It would also be hard to for the guys who have just focused on Japanese deals to keep their eye out for non-Japan business. That team was cut by at least 10 members as well so is really stretched as it is."

There is no shortage of speculation about why Morgan Stanley has decided to scale-back its Asia Pacific activity, central to which is the mortgage-backed securitization it arranged for Samsung Life Insurance last December.

Winning in June 2002 the mandate for the first cross-border MBS deal out of Korea was a huge coup for Morgan Stanley. Up to that point, the bank had not won any recent international securitization mandates from Korea - a market which has opened up significantly in the last three years so being selected for such a high profile deal was a surprise to a lot of its competitors.

However, the deal did not go as smoothly as Morgan Stanley might have hoped. Six months in the making, the size of the issue was cut late in the day from $465 million to $299.6 million due to regulatory issues.

Secondly, the final pricing of 50bp over three month Libor was significantly outside what had been forecast by market observers. The pricing was outside that of the two 144A credit card securitizations done in 2002 - by KEB Card and Woori Card - even though it was for better performing assets and for notes with shorter average lives.

Morgan Stanley bankers refuted that the deal was badly priced on the grounds that a new asset class tends to price wider and because the environment for new issuance in December had deteriorated from when the card deals were done.

There is probably some truth in that, but unsubstantiated rumours began surfacing of severe problems in attracting investors to the deal, which had a major impact on the money made from the deal.

Another possibility is that the job losses are simply a logical reaction to what is currently happening in the ex-Japan Asia business. Most of the opportunities are concentrated in Korea, but this market has dried up because of the geopolitical tensions in North Korea. As if that wasn't enough, the growing competition for mandates from a number of smaller franchises - prepared to do unwrapped deals and sell them into their own conduits - makes it tough for anyone else to get a look in at the moment.