Key facts
- Morgan Stanley provided early backing to Market Financial Solutions Ltd. (MFS) through a £50 million loan note purchase in November 2021.
- The loan was made to Earthave Bridging, a business controlled by MFS founder Paresh Raja.
- MFS collapsed in February, owing £1.8 billion ($2.4 billion) to creditors.
- Some creditors have accused Paresh Raja of misappropriating company funds.
- Britain's Financial Conduct Authority and Financial Reporting Council are investigating MFS and its auditors.
Morgan Stanley was among the initial global financial institutions to back Market Financial Solutions Ltd. (MFS), a UK-based private credit firm, before its significant collapse. Documents reveal that the U.S. investment bank purchased £50 million ($66 million) in loan notes from Earthave Bridging, a company controlled by MFS founder Paresh Raja, in November 2021. This deal provided early credibility to Raja's expanding mortgage business.
While Morgan Stanley's loan to Earthave was reportedly repaid with interest, other major banks like HSBC, Barclays, and Wells Fargo, which invested later, suffered substantial losses when MFS failed in February, owing approximately £1.8 billion ($2.4 billion) to creditors. Some creditors have alleged that Raja misappropriated company funds, and a judge noted in a court ruling that Raja had apparently fled to Dubai. The collapse has raised concerns among regulators about the exposure of mainstream financial firms to the loosely regulated private credit market, which is valued at over $3 trillion.
Britain's Financial Conduct Authority (FCA) launched an investigation into MFS in March, and the Financial Reporting Council (FRC) is investigating auditors involved with the company. MFS specialized in providing bridging loans and buy-to-let mortgages, a sector that grew significantly after post-financial crisis regulations limited risk-taking by traditional lenders.