Three months after halting its issuance of structured products in the UK retail market, Morgan Stanley continues to be in "blackout" mode. The bank’s structured products team, led by executive director Marc Chamberlain (pictured), remains silent and declining to comment on the progress and/or results of the review of its UK equity derivatives business which started in the wake of the UK Financial Conduct Authority’s (FCA) release of its thematic review of products development and governance back in March.
“They haven’t issued any of their regular offerings in the UK for over three months now, and they haven’t hedged any products for third-party distributors since then either,” said a source at a UK structured products distributor. “The question now is if they will return.”
SRP understands that after assessing the regulatory requirements put forward by the FCA at the beginning of the year concerns around compliance arose and the bank launched a review of its processes shortly after to make the necessary changes to comply internally with all the regulatory requirements coming into effect post-thematic review.
The bank’s equity derivatives ambitions were seriously dented in 2014, with the departures of Alvise Munari, global head of equity derivatives sales and financial engineering in London, and Pierre Mendelsohn, head of Asia equity derivatives distribution and global head of retail structured products in Hong Kong, the two most senior executives in its structured products division. Earlier in 2013, the bank lost its global head of retail structured products Frank Copplestone who reported to Mendelsohn. Munari reported to Luc Francois until 2012 when he left to join Natixis as head of the capital markets division, and tapped Selim Mehrez, former global head of financial engineering and derivative strategies at Morgan Stanley in London, as global head of equity derivatives, in Paris in October 2013.
In the UK, despite not being able to match its peak in 2011 of 91 products, Morgan Stanley has remained a visible household name and an established player in the retail structured products market with an average of 72 products a year between 2010 and 2014. This year, the US bank has issued 35 products, the last of which closed for subscription on April 22.
While its proprietary platform for independent financial advisers (IFAs) had increased sales and boosted its brand, the way the bank had cemented its presence was through establishing partnerships with third-party providers in the market and leveraging their distribution networks. After enjoying some success with (the now defunct) Incapital Europe, boasting sales of £14.5m across 10 products in 2011, Morgan Stanley has collaborated with Merchant Capital and Gilliat Financial Solutions, selling 65 structures through the latter over the last five years (both Merchant Capital and Gilliat have been absent from the market in 2015).
The bank’s most successful partnership to date has been with Meteor Asset Management, with issuance rising in 2013 by 31% on the year after Meteor began marketing Morgan Stanley notes, and the two continue to work together. Year-to-date, the bank has sold products through Meteor/SIP Nordic, Cube Investing, and Mariana Capital.
The US bank has been reviewing its business but will come back at some point, according to another senior source from a UK distributor that has sold Morgan Stanley-backed products in the past. “I wouldn’t write them off,” said the source. “To my knowledge, they are assessing their business in light of the FCA review, but I understand they will resume their issuance in the coming weeks. This could be a stepping stone for them. Morgan Stanley has a strong brand and reputation in the UK structured products market.”
A Morgan Stanley spokesperson confirmed the review of the business but declined to comment on any expected timeframe. “Following the publication of the Thematic Review of Product Development and Governance by the FCA earlier this year, Morgan Stanley initiated an internal review of the FCA’s findings and key messages,” said the spokeperson. “We decided not to launch any UK retail plans until that review is completed.”
Despite the question marks over Morgan Stanley’s future commitment to the UK retail structured products market, the US bank appointed last week Harriet Browning as vice-president, UK & Ireland structured sales in London, although a senior investment banker with knowledge of the situation said that the appointment is aimed at covering the gap left by the departures of Matthew Thompson, who moved to Goldman Sachs on June 10, according to the UK FCA, and David Holmes, who joined Bank of America Merrill Lynch earlier this year as an associate, equity derivatives.
Furthermore, Morgan Stanley has recently made several London hires in equity derivatives and structured products, including: Matteo Mazzetto as executive director, structured products sales; Kingsley Onah, a convertible bonds specialist; Benjamin Szakal, who joined as an exchange-traded funds trader; and Lawrence Hume as executive director, automated market making.
Outside the UK, Morgan Stanley expanded its footprint in the Nordics in May with a new range of exchange-traded products (ETPs) listed on the Nordic Growth Market (NGM) exchange and distributed via Swedish ETP broker dealer and adviser Avanza.
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