Morgan Stanley (MS) Collects $3.4B from Debt-Heavy Italy in Failed Interest Rate Bet
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Morgan Stanley - 1, Italy - nil.
According to reports out Friday, Morgan Stanley (NYSE: MS) got $3.4 billion from Italy (stated as "cutting its exposure" with an SEC filing) following an interest rate bet gone awry.
Italy got into the mess back in the 1990s, with the $3.4 billion going to unwind the interest rate bet. According to Bloomberg, one person familiar with the matter said it would have been cheaper for Italy to cancel the entire thing.
The cost will be about half of what Italy should get from a recent sales tax increase.
In a filing with the U.S. SEC on January 19th, Morgan Stanley said it "executed certain derivatives restructuring amendments which settled on January 3, 2012," leading to the reduction of Italian exposure by $3.4 billion.
Details of what Italy immersed itself in are complex, with the country selling bonds with maturities of 5 to 10 years and coupons of up to 10 percent. Interest on the bonds was then used for swaptions to reduce interest costs. With swap rates plunging in 2008, things got real hairy real quick, and Italy ended up eating massive costs in the fallout. Italy continues to be the second-most indebted nation in the European Union.
Morgan Stanley shares are down over 1 percent in early trading Friday, likely on the heels of a Deutsche Bank downgrade to Hold.
According to reports out Friday, Morgan Stanley (NYSE: MS) got $3.4 billion from Italy (stated as "cutting its exposure" with an SEC filing) following an interest rate bet gone awry.
Italy got into the mess back in the 1990s, with the $3.4 billion going to unwind the interest rate bet. According to Bloomberg, one person familiar with the matter said it would have been cheaper for Italy to cancel the entire thing.
The cost will be about half of what Italy should get from a recent sales tax increase.
In a filing with the U.S. SEC on January 19th, Morgan Stanley said it "executed certain derivatives restructuring amendments which settled on January 3, 2012," leading to the reduction of Italian exposure by $3.4 billion.
Details of what Italy immersed itself in are complex, with the country selling bonds with maturities of 5 to 10 years and coupons of up to 10 percent. Interest on the bonds was then used for swaptions to reduce interest costs. With swap rates plunging in 2008, things got real hairy real quick, and Italy ended up eating massive costs in the fallout. Italy continues to be the second-most indebted nation in the European Union.
Morgan Stanley shares are down over 1 percent in early trading Friday, likely on the heels of a Deutsche Bank downgrade to Hold.
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