Both Merrill Lynch and Morgan Stanley were copycatting Lehman Brothers Holdings’ modus operandi of acquiring mortgage originators. We know how well that turned out as Lehman is gone now. Lehman collapsed last September due to a variety of dangerous investments in commercial and consumer real estate and derivatives.
Similarly, Morgan Stanley had paid $706 million for subprime lender Saxon Mortgage, and had booked $348 mn of goodwill on its balance sheet related to the purchase of Saxon as well as Moscow-based lender CityMortgage, its financial statements show. Watch out here.
According to a representative of Morgan Stanley with whom I spoke in January 2009, Saxon Mortgage performs all mortgage servicing for all Morgan Stanley mortgages. That winning combination is sure to alienate people from ever doing business with Morgan Stanley.