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Morgan Stanley accused of ‘snobbery’ by Frasers over $1bn margin call

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Mike Ashley’s Frasers Group has accused Morgan Stanley of “snobbery” over its decision to impose a $1bn margin call, claiming the bank’s move was driven partly by the entrepreneur’s humble beginnings.

Appearing on the opening day of proceedings at the High Court in London, the billionaire said Morgan Stanley sought to force the UK retailer out of a position it held in German brand Hugo Boss and said the demand for collateral was “completely unbelievable”.

“You might as well have said a nuclear bomb has landed in Slough,” Ashley told the court on Wednesday.

Morgan Stanley hit back in its defence to the claim, alleging the London-listed retailer had “embarked on lawfare” against it “on an extraordinary scale”.

Camilla Bingham KC, representing the US bank, said that Frasers suffered “no loss” in the value of its Hugo Boss positions and that its claims “are not grounded in any form of recognisable legal or factual reality”.

The dispute relates to long positions Frasers started to accumulate in Hugo Boss from 2019 via its broker Saxo Bank, which in turn used Morgan Stanley to execute and clear the trades.

Morgan Stanley imposed a $1bn margin call “without warning” in May 2021, leading Saxo Bank in turn to demand $900mn from Frasers.

Adrian Beltrami KC, representing Frasers, said that senior insiders at the Wall Street bank had a “personal dislike” of Ashley, whom they regarded as an “upstart”.

He said the margin call was “out of any proportion to any actual risk”. Instead, “the evidence regrettably suggests that MS’s erratic behaviour was at least partly the result of snobbery”.

Frasers had to take “urgent action” to avoid the “financial and reputational fallout of a forced close-out”.

The retailer is suing the bank for about €50mn. Ashley told the court that the margin call was a “shock” that left him and colleagues at Frasers “drained”.

The positions were ultimately transferred via other institutions, led by HSBC, which Ashley said was “instrumental in avoiding a disaster”.

Ashley started as the owner of a single sports shop in Maidenhead in 1982 and went on to build Frasers — which owns sportswear chain Sports Direct as well as the eponymous department store chain — into a group valued at £3.7bn. He handed the reins of his retail empire to his son-in-law, Michael Murray, in 2022.

Ashley, the former owner of Newcastle United Football Club, is among the City’s most colourful characters. He once held a drinking competition and vomited into a pub fireplace to “huge applause from his management team”, according to a separate lawsuit he successfully fought in 2017 over allegations he owed £14mn to a Merrill Lynch banker.

In the current litigation, Frasers said Morgan Stanley rejected it as a client in April 2021 and alleged this was because Simon Smith, global co-head of the investment banking division at Morgan Stanley, had “personal animus” towards him. 

Smith had “a visceral reaction” to the possibility of working with Frasers and subsequently ensured the relationship was terminated, according to Frasers’ written submissions.  

Morgan Stanley said in court documents that Frasers had advanced “wild allegations of bad faith and irrationality”.

The bank said it had not known who stood behind the trades when it made the margin call, adding it was not Frasers’ broker.

The bank said it had applied stress tests to what was a “large single stock concentrated short”. The concerns had been highlighted by “short squeezes” in so-called meme stocks.

Also of concern was the collapse of Archegos, from which it had suffered significant losses, Morgan Stanley said.

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