The problem with being public is that your dirty underwear gets exposed, and if you are an investment bank, that means you have to talk about embarrassing losses.
Morgan Stanley announced that it lost $390 million in a single day in August. And of course, it was those pesky quant traders. And even worse, Morgan Stanley wound up fessing up after other firms had already disclosed their losses, meaning all the really good rationales were already taken.
Morgan Stanley, the world’s second- biggest securities firm, said its quantitative strategy traders lost $390 million during a single day in August as their computer models failed to account for “widespread” investor selling.
The company’s traders lost money on 13 days during the quarter ended Aug. 31, the New York-based firm said in a quarterly regulatory filing today. “The largest loss days resulted from losses associated with quantitative strategies in early August 2007, when these strategies were adversely affected by widespread portfolio reductions,” the company said.
So this announcement said the models only allowed for markets that would go up.
Morgan Stanley needs to fire either its quants or its corporate communications staff.