Chinese Firm Sticks It to Morgan Stanley

Taste of things to come, probably.

China Haisheng Juice Holdings, a Chinese company that makes and exports apple juice concentrate, settled out of court with Morgan Stanley over the currency derivatives contracts.

Instead of $27 million that Morgan Stanley had insisted the company pay, China Haisheng Juice holdings got away with paying only $7 million, 26 cents on a dollar.

Morgan Stanley settles derivatives lawsuit with Chinese company
(1/7/2010 Financial Times)

"Morgan Stanley has ended a confrontation with a Chinese company over disputed hedging contracts in an out-of-court settlement that may be a model for ending similar disputes involving mainland enterprises.

"The Morgan Stanley dispute with China Haisheng Juice Holdings was the most public of many between foreign investment banks and dozens of mainland Chinese companies over lossmaking derivatives deals

"Under the settlement, Haisheng will pay Morgan Stanley $7m, far less than the $26m the investment bank had been fighting for in London's High Court after the Chinese company ceased payments on the hedges.

"Haisheng will dismiss its legal proceedings in Xian, Shaanxi province, where it was counter-suing Morgan Stanley for allegedly mis-selling the contracts.

"A legal battle in China would have subjected Morgan Stanley to financial and political risks, lawyers said, making the settlement the most attractive option.

"But the agreement could encourage other Chinese companies to take legal action against foreign banks at home as a tactic to escape lossmaking contracts, lawyers warned."

So they give up on pursuing the full payment on the derivatives that they sold, if the counterparty is Chinese. A stark contrast to what they did to AIG, with the help from then-Federal Reserve New York president.

By the way, a sublime irony in this Morgan Stanley case is the fact that this juice company is 20% owned by Goldman Sachs, as this article mentions. Vampire Squid is everywhere, and on the winning side. Well, almost always.

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