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Morgan Stanley Suspended From France’s Elite Bond Club

Morgan Stanley Suspended From France’s Elite Bond Club

Morgan Stanley has temporarily lost its status as a primary dealer of French government bonds.

The suspension, which relates to transactions that took place more than five years ago, will last at least three months and takes effect Tuesday, Agence France Tresor -- the nation’s debt management office -- said in a statement.

Primary dealers must take part in government debt auctions, can sell the securities on to others and provide liquidity in the secondary market. Morgan Stanley’s suspension was over trades on June 16, 2015, that “seriously affected” liquidity and failed disclosure requirements, the AFT said.

The suspension will be lifted once the bank has complied with “remedial measures,” the AFT said. Morgan Stanley in a statement said it was working to implement the measures, and it had lodged an appeal against a decision late last year by the Autorite des Marches Financiers, a financial regulator, to fine the bank over accusations relating to the 2015 trading activity.

Temporarily rescinding the bank’s membership blocks Morgan Stanley from participating in government bond auctions. The bank was the 10th most active dealer in primary markets in 2019, according to the AFT website.

While fees from acting as a primary dealer are generally negligible, the prestige of working closely with the French government can foster further business for banks.

“‘It is not end of the world, but it does impinge on their ability to market-make governments, and perhaps more significantly this would spill over into bringing new corporate issuance to the market,” said Marc Ostwald, global strategist at ADM Investor Services. “It’s not exactly helpful for revenues and earnings, particularly as French corporate issuance is one of if not the largest proportion of euro zone issuance.”

For example, being part of this elite bond club makes banks more likely to be hired to manage lucrative syndicated bond sales for both governments and corporates. This year alone, financial institutions that were mandated to syndicate 15 billion euros ($17.6 billion) in French sovereign bonds made a combined 30 million euros in fees, the most lucrative year yet for such deals, according to Bloomberg calculations.

While Morgan Stanley hasn’t been a joint-lead manager on any publicly syndicated French transaction since 2017, it handled $10.8 billion worth of similar sales by European governments this year, and is ranked 15th among its peers, according to data compiled by Bloomberg. BNP Paribas SA and JPMorgan Chase & Co. top the list after managing $35 billion and $30 billion worth of deals, respectively.

Morgan Stanley was fined 20 million euros in December over accusations its London desk used “pump and dump” tactics to rig bond prices after a bet on the French sovereign turned sour amid Greece’s debt crisis.

©2020 Bloomberg L.P.