Wall Street Giant Morgan Stanley Ditches European Buyouts

One of the giants of Wall Street is retreating from investing in European buyouts months after writing a big cheque to the campaign to keep the UK in the EU.

Sky News has learnt that Morgan Stanley (Xetra: 885836 - news) informed London-based executives in its private equity team last week that it is abandoning deals in which the bank uses investors' funds to take control of, re-engineer, and sell companies.

A handful of senior managers, including Jean-Marc Jabre, who ran the team, are understood to have been let go as a result of the decision.

The move by Morgan Stanley comes after many of its rivals on Wall Street and beyond have downgraded their principal investment activities because of more onerous regulations introduced after the 2008 financial crisis.

It is possible that Morgan Stanley will still pursue some investments in Europe on an ad hoc basis through its Global Private Equity unit, but insiders described the move as significant.

The sources added that the decision was not connected to the result of the UK's referendum on EU membership, despite the fact that it had contributed hundreds of thousands of pounds to the Remain campaign.

Morgan Stanley took the unusual step of denying on 24 June - the day of the referendum result - a BBC report that it had begun the process of relocating thousands of its UK-based staff.

The US-based bank's European buyout operation owns a stake in just one company, a producer of high-grade steel products called Breitenfeld.

The investment has performed poorly for Morgan Stanley, according to insiders.

Its decision to pull back from investing in deals in Europe should not signify a broader retreat from private equity, people close to the bank said on Monday.

Last week, it announced an investment in a Texan operator of veterinary clinics.

News (Other OTC: NWSAL - news) of the Morgan Stanley decision emerged a fortnight after ValueAct, an activist hedge fund, disclosed a 2% shareholding in the Wall Street bank.

ValueAct, which also owns a stake in Rolls-Royce, the FTSE-100 engineering group, has publicly endorsed the strategy of Morgan Stanley's chairman and chief executive, James Gorman.

Morgan Stanley declined to comment.