Morgan Stanley forced Frasers off books with $1 billion margin call, court told

By Thomson Reuters Feb 21, 2024 | 8:59 AM

By Kirstin Ridley

LONDON (Reuters) – Morgan Stanley used an “unrealistic” and “inappropriate” near $1.0 billion margin call to force trades held by retail tycoon Mike Ashley’s Frasers group off its books partly out of snobbery, London’s High Court was told on Wednesday.

The two-week trial pitches Ashley, a British businessman whose fortune is estimated by Forbes to be worth $5.2 billion, against an investment bank heavyweight that spurned him as a customer three years ago.

Ashley had been seen as an “upstart”, who would have “zero respect to the norms of the way in which we do business,” Frasers quoted bank staff as saying in court filings. It said Morgan Stanley’s negative reaction when he tried to become a bank client was “class driven, no doubt about it”.

Frasers is now suing Morgan Stanley for about 47 million euros ($51 million) over alleged costs and lost trading profits after the bank imposed the margin call – collateral to cover possible losses on a trade – on the retailer’s trading position in German fashion group Hugo Boss in May 25, 2021.

Adrian Beltrami, a lawyer for Frasers, said on the trial’s opening day that the Wall Street bank changed the purpose of its $915 million margin call on May 28, 2021, after discovering that Frasers stood behind trades held by Denmark’s Saxo Bank.

Frasers, which traded Hugo Boss stock through Morgan Stanley client Saxo, alleges the decision to demand such collateral was capricious, in breach of market practice and designed to force it to close or move its positions and cause it harm.

Morgan Stanley, which dismisses the claim as contrived and without merit, says it had no contractual relationship with Frasers, only with Saxo, and alleges a margin call based on a potential 400% rise in Boss shares was designed to ensure it was properly protected from exposure to stock market bets.

The bank also brushed aside allegations of any vendetta against Ashley. It said the bank staff were horrified at the size of the Boss position at a time of heightened concern about large positions in single stocks.

“Holy crap … we haven’t seen anything this big for them (Saxo) before … this is exactly the type of concentration we need to be worried about,” Greg Basso, from the bank’s counterparty risk division, told an internal call on May 24 – before Saxo revealed its client’s identity – the court heard.

Camilla Bingham, representing the bank, said Morgan Stanley could have “exercised the nuclear right” to force the Boss position to be closed out when the margin was not fully paid, but engaged in discussions with Saxo about resolving the problem.

The margin call came two months after the collapse of family office Archegos Capital, in which Morgan Stanley lost $911 million.

Saxo and Frasers, which eventually transferred its trades,

have settled their case separately.

($1 = 0.9264 euros)

(Reporting by Kirstin Ridley; Editing by Tomasz Janowski)