Morgan Stanley Offers Update on 'Level-3' Assets

From Morgan Stanley's FQ408 conference call:

We are expecting the absolute value of level three assets to increase this quarter and they represent approximately 13% of total assets. The increase in the value is primarily due to the volatility seen in the derivatives market especially given the widening of credit spreads. The dramatic reduction in our total assets this quarter exacerbated the ratio of level three assets to the balance sheet.

As we have previously said there are offsetting hedges to these positions in the other levels of the fair value hierarchy. As you can see in our financial supplement on pages 16-18 we continue to systematically sell our level three legacy assets whenever opportunities arise.

Comments

[Ishortyou:]

Looks like those level 3 assets are primarily derivatives on CDS spreads, but as the volatility diminishes it will go down in price as well, to bad theri asset reduction are making the portion of their books in derivatives increase. This derivatives market needs to be transparent at all cost.

2008 Dec 22 07:08 AM