Morgan Stanley Mulling More Changes, May Spin-Off Proprietary-Trading Unit

With the rise of federal intervention in the financial sector, Morgan Stanley (MS) is reportedly considering radical changes for its the largest proprietary-trading unit, including a potential spin-off into a hedge fund or even a sale to outside investors.

The unit, Process Driven Trading, trades in stocks, options and futures using quantitative methods that have evolved as the forte of investment banks over the last two decades. As the government started intervening into the functioning of financial firms with the deepening economic crisis, Morgan Stanley has been getting rid of a number of its proprietary-trading desks that make bets on market moves.

Citing people close to the matter, the Wall Street Journal reported that discussions on restructuring of the Process Driven Trading unit have been going on for more than a year, but have gained pace in the past few months.

The paper also said that the New York-based company had not yet reached a specific decision regarding the operation and might leave it as it is in the end. Process Driven Trading has earned $6.5 billion in pretax income since its launch in 1993. That amount roughly equals Morgan Stanley’s net income since mid-2006.

Earlier this week, Morgan Stanley swung to a first-quarter loss and slashed its dividend, hurt by deteriorating value of real-estate investments and a debt-related charge. Shares of the company were down more than 2% to $21.44 in morning trade on the New York Stock Exchange.

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