Morgan Stanley’s Pre-2008 Mortgage-Backed Securities Strategy
Morgan Stanley trader Howard (Howie) Hubler reportedly lost the firm about $9 billion, the largest trading loss in financial history, after net-long positions on mortgage-backed securities (MBS) soured in 2007. Were the transactions underlying Hubler’s position on Morgan Stanley’s nostro (proprietary) account or were they principal transactions, simply part of the bank’s securitization of MBS? Hubler was named Managing Director of the Global Proprietary Credit Group (GPCG) in early 2006. Financial News reported in April 2006 that the creation of GPCG was meant to reorganize Morgan Stanley in such a way as to “separate buyside client business from principal activities.” GPCG was placed under the principal group umbrella, as opposed to the client-facing group, along with Global Commercial Real Estate Lending and Warehousing, and the Residential Principal Group. Hubler reported to Tony Tufariello, Global Head of the Securitized Products Group, who said that the reorganization would “...