Morgan Stanley reports $26 billion of non-investment-grade funded loans and lending commitments

By Jennifer Lanning Drey

Portland, Ore., March 19 - Morgan Stanley's non-investment-grade corporate funded loans and lending commitments totaled $26.0 billion at Feb. 29, demonstrating a $4.9 billion drop from $30.9 billion at Nov. 30, 2007, Colm Kelleher, Morgan Stanley's chief financial officer, reported Wednesday during the company's first-quarter earnings conference call.

The firm's lending business, which includes leveraged and relationship lending, took a first-quarter gross write-down of $2.1 billion, or $910,000 net of hedges. Half of the write-down was attributable to the leveraged acquisition finance pipeline and closed deals.

"We've been very clear that leveraged lending was one of our biggest concerns because the markets remained severely dislocated and virtually shutdown during the quarter," Kelleher said.

Within the $26.0 billion remaining on the books, $10.7 billion is non-investment-grade corporate funded loans and $15.3 billion is non-investment-grade corporate lending commitments.

During the call, Kelleher called the first quarter one of the most challenging Morgan Stanley has seen.

At a later point in the conference, he added that Morgan Stanley expects it to take at least several more quarters before the credit markets and liquidity levels return to their normal levels of activity.

"Pressure will remain until the markets begin to heal and the increasing level of uncertainty is taken out of the system," he said.

In the first quarter Morgan Stanley saw volumes drop across all major categories of mergers and acquisitions and underwriting, though pipelines continued to be healthy with clients engaging in strategic conversations, Kelleher said.

"However, market conditions may make monetizing pipelines challenging in the near term," he added.

Morgan Stanley reported first-quarter income from continuing operations of $1.551 billion, compared with income from continuing operations of $2.314 billion in the first quarter of 2007. Net revenues fell 17% below last year's first quarter.

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