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A top Morgan Stanley banker at the centre of its legal battle with Frasers has said he was concerned some in the City would have regarded its leadership as being “out of your minds” if they had accepted Mike Ashley’s retail group as a client.
Appearing before the High Court on Thursday, Simon Smith, global co-head of Morgan Stanley’s investment banking division, denied Frasers’ suggestion that it imposed a $1bn margin call to cover a trading position due in part to a “personal dislike” he had of Ashley.
However, while he described the billionaire as a “hugely successful guy”, Smith said the Wall Street bank had good reason to be wary of having a close relationship with the entrepreneur. He said that an infamous anecdote that Ashley once settled a dispute over a £200,000 legal bill with the pub game spoof was, in particular, “quite a serious” matter.
Frasers is suing Morgan Stanley for about €50mn over claims that it made a “capricious” demand for collateral to cover derivative positions in fashion group Hugo Boss that the UK retailer held via its broker Saxo Bank, which in turn used the US bank for execution and clearing.
The retailer has claimed that the evidence suggests Morgan Stanley’s “erratic behaviour” was “at least partly the result of snobbery”, and that the bank rejected it as an investment banking client in April 2021 because of Smith’s feelings towards Ashley.
Morgan Stanley has stated that it did not know who stood behind the trades when it made the margin call.
And under cross-examination from Adrian Beltrami KC, for Frasers, Smith said he had “no reason” to dislike the billionaire.
He told the court: “Mike Ashley is a hugely successful guy. He’s built incredible retail businesses. I haven’t done that. He should get more respect than he does.”
However, Smith said that some of the bank’s existing clients and others in the City would have asked “are you guys out of your minds” had the bank accepted Frasers as a client, given its reputation.
“There would certainly have been some people who would have thought that,” Smith said, adding that such perceptions were a relevant consideration for Morgan Stanley.
Ashley once played — and lost — a coin guessing game against a senior Merrill Lynch banker over who should pay a legal bill for the 2007 flotation of his Sports Direct business.
Smith said the episode raised questions about whether Ashley would “do the right thing”. “That’s having some fun. You’re a billionaire — you’re allowed to. But we’re not.”
He also said it was a “pretty big red flag” that some other Frasers’ advisers had stopped working for the company, and was concerned that Ashley had a reputation for being litigious, which would be a “huge waste of our time”.
“It wasn’t that I had one thing” to object about, Smith said. “There were a few different things”
Quizzed by Beltrami over whether he was basing his opinions on press reports and “second-hand” perceptions, Smith responded that the majority of the concerns he had raised were “not disputed facts”.
Smith is the most senior Morgan Stanley banker to appear during the proceedings, which are scheduled to last another week.
At the conclusion of the hearing, the judge, Mr Justice Bryan, asked both sides to return with clarification on the nature of the spoof game, given that it formed a significant part of the witness’s evidence.
“I don’t think I would be safe to take judicial knowledge,” he said, referring to evidence that is assumed to be true. “I ought to at least know exactly what it is.”
