Morgan Stanley seeks support from China

Morgan Stanley announced write-downs of $9.4bn largely owing to subprime related losses. The company also proclaimed the sale of a $5 billion stake to a Chinese investment fund to buttress its capital.

Earlier, Bear Stearns, another Wall Street Bank had looked to China for help. John Mack, chairman and chief executive, said the $5bn injection from China Investment Corporation would help strengthen its relations in China besides reinforcing its already strong balance sheet.

Mr. Mack called the fourth-quarter loss of $3.56 billion as ‘deeply disappointing’ and said, “Ultimately, accountability for our results rests with me, and I believe in pay for performance, so I've told our compensation committee that I will not accept a bonus for 2007.”

James E. Cayne, the chief executive of Bear Stearns, might also forgo a bonus.

Other investment banks to have lost to this extent are UBS, Citigroup and Merrill Lynch; all three lost their chief executives. And now, there is huge speculation about Mr. Mack’s position. He had come only two years ago and insisted on trading with the firm’s own capital.

His strategy of expanding in mortgages and making bigger trading bets backfired as more than double of losses from securities linked to home loans were reported in November. Consequently the firm saw the biggest write-down in its history.

Mr. Mack however, is expected to remain seated at his position but will have to bear a huge compensation. His pay this year will amount to about $800,000 while last year, he took home about $40 million. This pay looks particularly humble when compared to the chief executive of arch rival Goldman Sachs, Lloyd C. Blankfein, who is likely to receive a $70 million bonus.

Mr. Mack noted that the losses have occurred only on one desk while areas of the firm: investment banking, asset management, retail brokerage and hedge fund servicing businesses have done well.