Morgan Stanley Confirms $3.7 Billion Writedown Tied to Subprime Exposure

Morgan Stanley said today that revenues in September and October were hit by $3.7 billion in writedowns tied to continued decline in the fair value of the company’s subprime-related assets. The confirmation comes on the heels of a WSJ report yesterday that had projected $3.0 to $6.0 billion in fourth quarter write-downs for the Wall Street giant.

From the company’s press statement, issued after market close on Wednesday:

At the end of Morgan Stanley’s fiscal third quarter on August 31, 2007, the Firm had $12.3 billion in U.S. subprime related balance sheet exposures representing $10.4 billion in net exposures, as indicated in the attached table. Net exposure as of October 31, 2007 is $6.0 billion. Net exposures are defined as potential loss to the firm in a 100 percent loss default scenario, with zero recovery.

Since that time, the fair value of these exposures has declined as a result of the continued deterioration in market data, as reflected by the sharp decline in the ABX Indices, and other market developments, including updates to mortgage remittance data and cumulative loss forecasts.

Subprime holdings include whole loans, total rate-of-return swaps, ABS bonds (including subprime residuals) and ABS CDS.

Morgan Stanley also warned that further deterioration in the value of its subprime holdings may take place during the remainder of the fiscal fourth quarter, but said it would not offer speculation on any further changes in value until it reports its fourth quarter earnings in December.