Morgan Stanley’s money managers, entrusted with navigating the world’s financial markets with all kinds of sophisticated strategies, evidently have a little problem with long division.

On Thursday the big Wall Street bank announced that its investment management division snapped up a bigger stake in Brookfield Infrastructure Partners (BIP) than intended. Nearly twice as much.

Morgan received shares of BIP during the January spin-off by Toronto-based Brookfield Asset Management and then bought additional shares in the market. 

Yet what in March was reported to be a 12.6 percent stake in the infrastructure firm was, in reality, a 23.3 percent stake, according to a press release Thursday. That pushes it over the 20 percent threshold for regulatory disclosure requirements. Morgan Stanley blamed the mistake on bad data.

“The foregoing calculation was based on third party market data sources, which stated the issuer had approximately 39.2 million units outstanding,” Morgan said in the statement. Only recently, the firm said, did it learn BIP only had just 23.3 million units.

As a result, Morgan said it will now sell some of its 5.2 million BIP units to get below 20 percent. Using rough numbers, Reuters estimates Morgan needs to sell 530,000 units.  BIP units fell 2 percent on early NYSE trading.

Next time, maybe the firm will look at Brookfield’s financial reports. Or pick up the phone. Morgan Stanley declined to comment beyond its statement.

(Reuters photo)

Unfortunately for beaten down investment bank Lehman Brothers, the Ian Lowitt Era began with a whimper. 

Lowitt, Lehman’s  fourth new CFO since 2005,  made his debut on the world stage with a full minute of silence during the firm’s standing room only second-quarter conference call. Turns out a master of financials, former firm treasurer, Rhodes Scholar and the man-chosen-to-restore-confidence in Lehman forgot to switch on his microphone.

This awkward moment in the ongoing credit crunch followed CEO Dick Fuld’s forceful defense of the firm’s outlook and his assurances to the No. 4 investment bank has a handle on the problems that generated a $2.8 billion net loss. 

Funny thing is, Fuld had just assured his audience of analysts that Lehman will provide greater transparency, the legacy of accusations from critic David Einhorn that the firm was too secretive with vital information about exposures and asset valuations.

Lowitt also replaced Erin Callan, the well liked banker whose confrontation with Einhorn, and her spotty performance during the previous conference call, left investors with the unsettling view she was not cut out for the big job.  Below is the transcript of Ian’s failure to launch.

Dick Fuld, Lehman Brothers Holdings Inc. - Chairman, CEO 
Our goal — our goal is simple. That’s to create value for our shareholders and for our debt holders, for our clients, and for our employees. On many fronts, in this cycle, we did not achieve this goal. This is my responsibility. We’ve made a number of changes. It’s now my job to make sure that we execute. Ian? 

Ian Lowitt, Lehman Brothers Holdings Inc. - CFO 

(52 seconds of silence)
 
Operator   
Please continue to stand by. 
Lowitt
I’m sorry. I’m going to start over with my remarks. My microphone was off. Thanks, Dick. The microphone’s now on. Good morning and thank you for joining us today. 

(To see DealZone take on Fuld’s view on Lehman’s independence, click here. )

We’re not suggesting JPMorgan did anything illegal or immoral, but what’s up with the hush-hush capital raise?

Early on Wednesday, the third-largest U.S. commercial bank, and resident Wall Street savior announced a 50 percent drop in first- quarter earnings, dragged down by $4.4 billion of write-downs and loan losses. Chief Executive James Dimon spoke with reporters for a half hour, spent about an hour with analysts and even attended a Korea Investment Forum luncheon, as pictured above.

At no time did the putative Prince of Wall Street mention a little thing like selling $6 BILLION of new hybrid debt to further bolster its so-called “fortress balance sheet.” The sale was quietly completed later on Wednesday.

Portfolio thought the timing was “very, very weird” while Housing Wire did a double take.

The bank declined to comment on the transaction, but our sources at JPMorgan said the bond sale was routine, one of more than a hundred such deals over the past decade. Moreover SEC rules prevent banks from disclosing material information in the days ahead of an earnings announcement.

Besides, the source said, bond buyers all over the market knew a deal was in the works and proved to be very hungry for the paper, which was structured so that common shareholders will not see their share of profits diluted. In that case, it’s unlike the costly sales of stock and convertible shares by foundering banks like WaMu or Wachovia.

These days, as the New York Post chuckles, Dimon & Co really can do no wrong…

They say the early bird gets the worm. But if you’re a business reporter for a national broadsheet, getting to the office before 8 a.m. can be a real hardship.

While waiting on hold for JPMorgan Chase officials to begin their 8 earnings call, Scribbler A was shooting the breeze with her rival, Scribbler B (Names withheld to protect the innocent).

After some shop talk, the two talked about how they deal with such early assignments.

A - Are you in the office or are you home?

B (sounding tired) - No, I’m in the office. I actually came in this morning.

A - You usually don’t?

B - No, I normally call in from home.

A - I always come in.

B - Really?

A - Yeah. It’s four times a year. You know? It’s easier.”

Egads! We should all have it so tough…

Play ball!

In the face of choppy markets that have knocked down Morgan Stanley stock by a third since June, generated $11 billion of losses and cost him a bonus, Chief Executive John Mack had baseball on his mind.

Just before shareholders reaffirmed their faith in their captain, voting back all directors to the board and beating down a “say on Pay” uprising, Big Mack told Reuters that investments banks are in the final innings of what has been a grueling game.

“If you put it in a baseball analogy, and you look at the subprime problem in the U.S., you would say were in the eighth inning or maybe the top of the ninth.” (For our friends in England and other locales bereft of baseball’s blessings, there are nine innings in a game.)

Later: “Leveraged lending, as we know it, is in the ninth inning.”

And for those still keeping score at home: “The last thing we need to figure out is the commercial market, CMBS. In that, we’re in about the fifth inning.”

European markets are a whole other ball game [Editor’s note: maybe rounders?]:

“We just don’t know. We don’t have enough info yet,” he said. “We keep getting disclosures that surprise us.” (While Mack declined to name names, he hinted at a bank with the initials U, B and S.)

In the same interview, Mack drew a picture where trillions of dollars of cash and a shot of confidence would inspire investors to once again come out swinging.

Anyway, let’s just hope this credit crunch doesn’t go into extra innings. Wall Street may not have that many strong bats left on the bench.

So far in 2008 M&A activity is down. A lot.

The decline, as expected, reflects the drought of leveraged buyouts after Wall Street banks stopped providing cheap debt. And that in turn turned off the LBO revenue tap for big Wall Street banks.

Yet boutique bankers, at least those that never financed big buyouts during the boom, say their business of serving “strategic” buyers will hold up well despite the credit crunch.

In a rare interview since leaving Morgan Stanley in 2005, famed deal-maker Joe Perella told Reuters that demand for independent advice is undiminished and may even grow.

“The need for advice hasn’t gone away. As the private equity people recede to the background, strategic buyers have less competition and I think they will get more aggressive,” said Perella, one of Wall Street’s best known dealmakers for the past 35 years.

With the cheap debt that fueled the leveraged buyout boom no longer available, first-quarter U.S. M&A volume plunged 56 percent, according to the latest Dealogic data. Private equity deal volume dropped 76 percent.

“The boutiques will suffer little or no decline in revenue because their business model wasn’t built on, and their headcount wasn’t expanded to serve, the needs of the private equity industry,” Perella told Reuters.

Certainly that is the hope of Perella and Terry Meguid, senior bankers who fled Morgan Stanley in April 2005, and Peter Weinberg, a descendant of several Goldman managing partners. The three bankers launched Perella Weinberg in June 2006, seeing a need for firms selling advice free of conflict of interest.

So far, so good. In its first 22 months, Perella Weinberg quietly has grown to 107 people and built a business with $2.5 billion in assets under management. The firm and its 20 advisory partners has worked on at least 25 announced deals worth more than $100 billion.

“That demand has been constant. That’s always existed. What’s happened is the conflicts have multiplied,” said Perella, who broke off with partner Bruce Wasserstein in 1993 to join Morgan Stanley.

Perella Weinberg bankers join a number of other Wall Street executives who maintain there is gold to be mined in today’s difficult markets. Meguid says cash and equity levels are historically high among S&P 500 companies, and that the disappearance of private equity buyers has cleared a crowded field and sets the stage for some timely deals.

“This is a perfect time to be a liquid, patient investor,” Meguid said. “People with courage and conviction are going to make a lot of money,” Meguid said.

News reports continue to crown Bear Stearns the fifth-largest investment bank in the land. But now that the bank owns a $2 per share stock takeover offer from savior JPMorgan Chase, Bear Stearns is more accurately described as just a little cub.

That means little Bear, yet another Wall Street firm to be consigned to history books, for the duration won’t be running with the big boys like Goldman Sachs, $62 billion of stock market value, or Morgan Stanley, runner up with $44 billion.

Nope. Bear, worth a paltry $240 million to JPMorgan, has moved across the tracks to a new neighborhood. It’s less than half the size of Stifel Financial, a St Louis brokerage value at $642 million, or financial services investment bank KBW, which weighs in at about $580 million. Its also smaller than Friedman Billings Ramsey’s capital markets spin-off ($368 million), SWS Group, parent of Southwest Securities ($307 million), and  Ladenburg Thalmann Financial Services ($307 million).

You have to drill all the way down to Thomas Weisel Partners, the San Francisco banking boutique dealing with a sour IPO market, which has a $190 million market cap.

Of course, Bear Stearns by most measures is still a major bank with 14,000 employees, $96 billion in assets and some top-tier businesses, such as securities clearing. It also has a break-up value approaching $7.7 billion if you believe Bernstein analyst Brad Hintz. It owns a Manhattan skscraper that is alone worth more than $1 billion.

(For reasons that are unclear, Bear was trading for more than twice its takeover value at $4.62 on Monday. That, for now, makes Bear a $587 million market cap company.)

If JPMorgan chief Jamie Dimon can realize even a fraction of that internal value, keep the class action lawyers in check and hold on to Bear’s best people — all Big Ifs — he’s indeed getting quite a bargain.

(Additional reporting by Dan Burns)

Whoops!

We’re hearing that a bond trader, much to his chagrin, apparently didn’t “get the memo.”

That would be the one his supervisors sent that warned the firm’s desks to stop doing business with beleaguered Bear Stearns as of 10 a.m. (1400 GMT) last Friday, as markets swirled with speculation the New York bank was running out of cash.

Well, he did a trade and now trader and his supervisor are under fire from management. In this case, JPMorgan Chase is stepping in and will guarantee the trade.

But next time, spare yourself some agita and read your e-mail.

                                          Discover Financial, the “cash back” credit card company, has just flushed more than $1.6 billion down the toilet.

Earlier today, Discover announced it would sell its troubled British “Goldfish” credit card business, which has about 2 billion pounds in loans, to Barclays Plc for $70 million. Less than two years ago, Discover, then owned by investment bank Morgan Stanley, paid $1.68 billion for the same business.

While the headlines and the tsk-tsking will fill focus on Discover, some of the blame falls on Morgan Stanley and its chief since June 2005, John Mack. This fiasco of an investment marks the latest dent in Mack’s track record as an acquirer.

A bit of background: Mack supported the merger of blue blood investment bank Morgan Stanley with Dean Witter, Discover & Co.  in 1997, a deal that gave Phil Purcell the reins and four years later Mack’’s own ouster from the bank he loved. Flash forward to 2005, when Mack replaced a Purcell whom investors complained lost ground to Goldman Sachs because Morgan had grown too cautious.

Morgan Stanley spokeswoman Jeanmarie McFadden declined to comment.

Over the past two and a half years, Morgan took on more risks in its trading (the fallout from that strategy has been well documents), launched a private equity business and began making more proprietary investments.

So far, the bank’s purchases of several hedge fund manager stakes, FrontPoint Partners, energy transport company TransMontaigne and some other deals have performed well. Mack also deserves some credit for spinning off Discover in June 2007, an ideal time since credit markets tumbled immediately after. 

But the Goldfish deal — and Morgan’s acquisition of subprime mortgage company Saxon Capital in 2006, just ahead of the subprime meltdown – illustrate that even modest “bolt on” deals can go belly up.

After 157 years as an elite private partnership steeped in Old World secrecy and intrigue, investment bank Lazard went public in May 2005 on the New York Stock Exchange. Alas, old habits die hard.

We submit as evidence this late breaking news release from Lazard, which waited until after U.S. markets closed Tuesday to reveal it would announce fourth-quarter results Wednesday. That translates to roughly 16 hours notice for analysts, investors and reporters who follow the activities of this expanding merger advisor.

Not that anybody is breaking the rules here, but it makes you wonder why a company held by small and big investors alike waited so long.  Certainly famed Lazard chief Bruce Wasserstein wants his efforts to get plenty of attention, right?

According to this glowing profile  in Portfolio magazine,  ”Bid ‘em up Bruce” has made a full recovery from a wealthy but somewhat marginalized banker to become an even richer, vindicated genius. That’s because he runs a firm that makes most of its money by providing advice to companies and governments and by managing money: no exotic CDOs, no ill-advised bets on mortgages, no hung LBO loans.

Analysts expect Lazard fourth-quarter earnings to soar, capping off a strong 2007  with a second half much stronger than the first. Company executives in recent months assured that the outlook for strategic M&A, or deals not involving leveraged buyout firms, should remain healthy.

Yet Lazard’s share price tells a more cautious story. Despite its lack of exposure to the credit crunch and its recent success serving as consigliere to sovereign wealth funds, Lazard stock is down 15 percent in the past month and down 31 percent over three months. The market seems to be taking the position that if corporate chiefs choose to stay on the sidelines, a firm depending on M&A will suffer.

Which brings us to Wednesday’s surprise earnings results. Investors can only hope that Lazard is more forthcoming about the outlook for its business than it was about the date of their quarterly confessional.