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Billionaire entrepreneur Mike Ashley claimed that “nothing” would satisfy Morgan Stanley as it made “horrific” demands to cover a trading position held by his UK retail group Frasers.
During a colourful cross-examination in the second day of proceedings against the Wall Street bank, Ashley told London’s High Court he was willing to bet “any money” that Morgan Stanley planned to follow up a $1bn margin call on Frasers’ positions in fashion brand Hugo Boss by insisting on even more collateral.
“No amount of margin collateral was going to satisfy” the bank, Ashley said. “Nothing.”
Frasers is suing Morgan Stanley for about €50mn over claims the investment bank forced the retailer out of its Hugo Boss derivative trades in part because insiders at Morgan Stanley’s London office looked down on him as an “upstart”.
The retailer, which owns Sports Direct as well as the eponymous department store chain, had accumulated its interest in the German luxury brand from 2019 via its broker Saxo Bank, which in turn used Morgan Stanley for execution and clearing.
Morgan Stanley imposed a $1bn margin call “without warning” in May 2021, according to Frasers’ claim, leading Saxo Bank in turn to demand $900mn from the retailer. Frasers’ positions were ultimately transferred via other institutions, led by HSBC, but it was “frozen out of further, profitable, trading”, according to the claim.
Cross-examining Ashley on behalf of Morgan Stanley, Camilla Bingham KC put it to the entrepreneur that he was suing the bank “out of pique” after it rejected Frasers as a client. “Is that what this is all about?”
Ashley denied that allegation, adding he had brought the lawsuit to show “how grotesquely and unfairly Morgan Stanley acted” in issuing the margin call, which he described as “horrific”.
“I’m a victim of Morgan Stanley abuse,” Ashley said, adding that he made a “personal guarantee” to offer “everything” subject to an agreement that the bank would not make similar demands in future.
Morgan Stanley claimed it did not know who stood behind the trades when it made the margin call, which it imposed having applied stress tests to what was a “large single stock concentrated short”.
Bingham quizzed Ashley on Thursday about whether he had sought approval from the board of London-listed Frasers before he launched the lawsuit. “Surely the board has to be persuaded that it’s in the company’s interests?” she asked.
Ashley said he did not believe that he personally sought such approval, adding that the sums sought in damages were “not a sizeable sum of money” for Frasers.
Bingham also asked Ashley, who started as owner of a single sports shop in Maidenhead in 1982, about Frasers’ claims that Morgan Stanley made the collateral demand in part out of “snobbery”, and had rejected the retailer as a client because one of its most senior bankers had “personal animus” towards him.
“He’s not waging some sort of class warfare, is he?” she said of Simon Smith, global co-head of the investment banking division at Morgan Stanley.
She asked whether Ashley was on a “mission” to force financial institutions to associate their brand with his, noting that Frasers had “struggled over the years” to maintain relationships with corporate brokers.
Ashley was also questioned about text messages he deleted that Morgan Stanley argued might be relevant to the case. Ashley said he had “a very old” Nokia mobile phone and deleted messages “quite frequently” given its limited storage capacity.
Morgan Stanley said that it issued the margin call in part because of concerns about “short squeezes” in so-called meme stocks, noting it had suffered significant losses from the collapse of Archegos too. The bank added that its counter-party risk team believed the short call position in Boss options “was five times larger than any previous position established by Saxo” through Morgan Stanley.
The hearing continues.
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