Morgan Stanley freezes clients' home equity credit lines

August 7, 2008
SUB-PRIME CONTAGION
Morgan Stanley freezes clients' home equity credit lines

(NEW YORK) Morgan Stanley, the second-biggest US securities firm,
told several thousand clients this week that they won't be allowed to
withdraw money on their home equity credit lines, said a person
familiar with the situation.

The action mostly affected clients with properties that have lost
value, according to the person, who declined to be identified because
the information isn't public. The New York- based investment bank
will review home equity lines of credit, or HELOCs, monthly from now
on, the person said on Tuesday.

Wall Street firms including Morgan Stanley are ratcheting back on
risks after the collapse of the sub- prime mortgage market and
ensuing credit contraction saddled banks and brokerages with almost
US$500 billion of writedowns and losses. Consumers fell behind on
home equity credit lines at the fastest pace in two decades in the
first quarter, the American Bankers Association reported last month.

'Consistent with the terms of the HELOC, or home equity line of
credit, Morgan Stanley periodically reassesses client property values
and risk profiles,' said Christine Pollak, a Morgan Stanley
spokeswoman in New York, on Tuesday.

'A segment of clients was recently notified of a change in the status
of their HELOC due to a change in the value of their property and/or
their credit profile.'

Ms Pollak declined to specify the dollar amount of the frozen credit
lines. The firm's global wealth management division, which doesn't
disclose how many clients it serves, had 8,350 advisers managing
US$739 billion of customer assets at the end of May, according to its
second-quarter earnings report.

Morgan Stanley has already taken about US$14.4 billion of losses
related to leveraged loans and collateralised debt obligations (CDOs).

The clampdown on home equity loans mirrors similar efforts by
commercial banks, said David Hendler, an analyst at Credit Sights Inc
in New York.

'All consumer lenders and home equity lenders are reassessing the
environment, given the pressure on housing and the economy,' Mr
Hendler said.