Rogue London trader loses $120 million

(Times Online) -- Morgan Stanley became the latest financial services group to fall victim to a rogue trader as it admitted that it had suspended a credit trader in London for trying to hide losses of about $120million (£61.3million).

America's second-biggest securities firm said that the Financial Services Authority was conducting a full investigation into the conduct of an unnamed employee after Morgan Stanley discovered in May what it called a “$120 million negative adjustment to marks previously taken in a trader's book that did not comply with the firm's policies”.

The presence of the rogue trader emerged as Morgan Stanley reported a 60 per cent decline in its second-quarter profits, dragged down by a $955 million loss on its portfolio of mortgage-related investments and loans to finance private equity buyouts. The group announced net income of $1.03 billion in the three months to June, down from $2.58 billion a year earlier but slightly ahead of expectations.

The decline in profits came despite a one-off gain of nearly $1.5 billion from the sale of its Spanish wealth-management business and a secondary offering of shares in MSCI Barra, a provider of data for hedge funds and other indices in which Morgan Stanley is the majority shareholder.