(Reuters) – Morgan Stanley on Friday said it would review a report it produced for British regulators following Archegos Capital Management’s collapse to see if it should be provided to British retail tycoon Mike Ashley’s Frasers Group in its €50 million ($48.7 million) lawsuit against the U.S. investment bank.
Lawyers for Frasers told London’s High Court that Morgan Stanley’s response to financial regulators in the United Kingdom, which last year told banks to carry out a systematic review of risks from their equity finance business, is “important and should be disclosed”.
Judge Richard Jacobs said during the hearing that “some passages” of the report may be relevant but that it was unlikely the entire document should be handed over.
The retail group’s lawsuit, which claims Morgan Stanley acted in bad faith over trades it made to expand its stake in German fashion brand Hugo Boss, is scheduled to kick off in February 2024.
Morgan Stanley’s report was produced after the Bank of England, the UK’s Financial Conduct Authority and the Prudential Regulation Authority wrote to banks following the March 2021 implosion of Archegos, a New York investment fund, which resulted in more than $10 billion of losses across multiple firms.
Frasers wants the report to support its case against the U.S. bank, arguing the information is relevant to why Morgan Stanley made the decision to impose a $995 million margin call in May 2021 on certain options in Hugo Boss shares.
Morgan Stanley says it was “entirely justified in making the margin call”, which was a “rational response” to the risk it perceived in relation to Frasers’ call options.
The bank’s lawyers told the court that it will review its response to the financial regulators to see if there is any relevant information to provide to Frasers.
The lawsuit relates to a margin call imposed by Morgan Stanley on Danish bank Saxo, with which Frasers says it traded Hugo Boss options from August 2019. Saxo, which was also a defendant in the lawsuit, has settled the case against it, Frasers’ lawyers told the court on Friday.
Frasers, which said in June that it holds 4.9% of Hugo Boss stock directly and a further 26% of stock in the company indirectly, contends that the margin call was out of proportion to any risk to which Morgan Stanley was exposed.
But Morgan Stanley says its contract with Saxo gave the U.S. bank “an ‘absolute discretion’ to impose margin calls from time to time in respect of exchange traded derivatives” traded between the two lenders.
The case is Frasers Group PLC v Morgan Stanley & Co International PLC, CL-2021-000369.
For Frasers: Adrian Beltrami KC, Adam Temple and Mark Wassouf of 3 Verulam Buildings, and RPC
For Morgan Stanley: Camilla Bingham KC of One Essex Court, Clara Johnson of South Square, and Clifford Chance
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