Other Wall Street firms like Morgan Stanley are pulling back on risks after banks and brokerages were hit with nearly $500 billion of writedowns and losses in wake of the collapse of the subprime mortgage market and the credit crunch that followed. In first-quarter 2008, consumer delinquencies on HELOCs were at their fastest pace in the last twenty years, according to the American Bankers Association.
Said Morgan Stanley spokeswoman Christine Pollak, “Consistent with the terms of the HELOC, or home-equity line of credit, Morgan Stanley periodically reassesses client property values and risk profiles. A segment of clients was recently notified of a change in the status of their home equity line of credit or HELOC due to a change in the value of their property and/or their credit profile.”
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 $739 billion of customer assets at the end of May, according to its second-quarter earnings report.
Morgan Stanley has already taken about $14.4 billion of losses related to leveraged loans and collateralized debt obligations.
Morgan Stanley isn’t the only firm taking such actions. David Hendler, an analyst at Credit Sights Inc. in New York, said commercial banks are also enacting tough measures on home-equity loans.
“All consumer lenders and home-equity lenders are reassessing the environment given the pressure on housing and the economy,'' noted Hendler.