) recently completed the divestiture of its European real estate
debt servicing arm worth £4.5 billion ($7.4 billion). The
servicing unit was acquired by Mount Street, a U.K based firm
that provides loan services as well as other loan management
solutions to the European commercial real estate (CRE) sector.
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As per a report in CoStar Finance, the vended unit includes nine
commercial mortgage backed security (CMBS) transactions worth
£2.74 billion ($4.5 billion).
Following the boom in the European CMBS market in the pre-crisis
period, Morgan Stanley had initiated a European Loan Conduit
(ELoC) program. The vended servicing units were set up at that
time to service the loans related to the ELoC program.
However, with the changing economic scenario in Europe, Morgan
Stanley's mortgage business soon fell into trouble. Despite the
condition stabilizing of late, the overall prospect of mortgage
business still seems gloomy.
Moreover, in fourth-quarter 2013, Morgan Stanley's earnings from
continuing operations fell 79% year over year to 7 cents per
share. The disappointing results were due to the legal reserve of
$1.2 billion kept aside in that quarter for resolving
Therefore, the aforementioned divestiture by Morgan Stanley is in
line with the company's strategy to avoid legal hassles related
to mortgage servicing going forward. Further, offloading its
non-core assets will continue to strengthen its balance sheet.
Moreover, the company is now shifting its focus to increasingly
profitable Wealth Management (WM) and Investment Management (IM)
segments. In fourth-quarter 2013, while WM recorded a 26% rise in
pre-tax income from continuing operations, IM reported a 52%
Divestiture of mortgage servicing units is not new for Morgan
Stanley. Earlier, in Apr 2012, Morgan Stanley sold its
mortgage-servicing unit Saxon Mortgage Services Inc. to
Ocwen Financial Corp.
) for $73.8 million in cash.
Currently, Morgan Stanley carries a Zacks Rank #3 (hold). Some
better-ranked major financial institutions include
Bank of America Corp.
The Goldman Sachs Group, Inc.
). Both of these companies carry a Zacks Rank #2 (Buy).