Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
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.
On the opening day of €50mn proceedings at the High Court in London on Wednesday, Frasers claimed senior insiders at the Wall Street bank had a “personal dislike” of Ashley, whom they regarded as an “upstart”. Frasers alleges Morgan Stanley made a “capricious” attempt to force the UK company out of a derivative position it held in Hugo Boss, the luxury German brand.
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 in written submissions 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, for Frasers, told the court on Wednesday that the margin call was “out of any proportion to any actual risk”.
He argued the bank’s decision was not taken for financial considerations. 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 positions were ultimately transferred via other institutions, led by HSBC, although Beltrami said this was “a difficult and indeed unlikely task given the understandable reluctance of other brokers to deal with Frasers” in such circumstances.
Ashley has built Frasers — which owns sportswear chain Sports Direct as well as the eponymous department store chain — into a group valued at £3.7bn, having started as the owner of a single sports shop in Maidenhead in 1982. He handed the reins of his retail empire to his son-in-law, Michael Murray, in 2022.
A separate lawsuit that Ashley successfully fought in 2017 — over allegations that he owed £14mn to a Merrill Lynch banker — included colourful claims about Ashley, such as that he once held a drinking competition and vomited into a pub fireplace to “huge applause from his management team”.
In the current litigation, Frasers said Morgan Stanley rejected it as a client in April 2021. The retailer alleges this was because Simon Smith, global co-head of the investment banking division at Morgan Stanley, had “personal animus towards Ashley”.
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. It said it was not Frasers’ broker and owed it “no contractual or tortious duties”.
The bank said it had applied stress tests, reflecting concern at the bank over “the potential impact of large single stock concentrated short positions”. 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.
