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Rating:MSCI Discloses a Wells Notice as Its Shares Tumble Post-Vanguard Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, October 03, 2012

MSCI Discloses a Wells Notice as Its Shares Tumble Post-Vanguard

News summary by MFWire's editors

Tuesday was not a good day for the folks at MSCI. The publicly-traded New York City-based index provider lost a client and disclosed regulatory action, even as its stock price tumbled and as its woes captured headlines.

The MFWire reported that Vanguard [profile] will drop the MSCI as index provider for about $537 billion in mutual fund and ETF assets. Vanguard made the announcement before the market opened yesterday, and Christopher Condon and Saumya Vaishampayan of Bloomberg report that MSCI's share price subsequently fell 27 percent to $26.21, its biggest single day drop since IPOing almost five years ago.

Also yesterday, MSCI disclosed in an 8-K that on September 14 MSCI subsidiary Institutional Shareholder Services received a Wells Notice from the SEC's division of enforcement. The notice follows ISS' March termination of an employee who allegedly "provided proxy voting information to proxy solicitors in return for cash and other gifts."

Vanguard spokesman John Woerth told Bloomberg that the low-cost mutual fund giant's switch away from MSCI had nothing to do with the Wells Notice.

Vanguard anticipates "considerable savings" for its ETF shareholders after the switch. In a call with analysts, Dow Jones reports, MSCI CEO Henry Fernandez insisted that MSCI's brand and reputation come with a premium, "and we intend to keep that premium."

"It's not just price," Fernandez said, according to the Wall Street Journal.

Yet Reuters reports that Fernandez conceded that ETF index selections "may not be as sticky as we all thought."

In a statement, MSCI index business chief Baer Pettitt said that he's "disappointed" with Vanguard's decision. According to MSCI, its "annualized revenue and operating income" from the Vanguard funds being switched is about $24 million. By comparison, Bloomberg notes, MSCI reported $239 million of operating revenue in the second quarter of 2012.

"This is a huge negative reaction to $24 million in revenue," Standard & Poor's analyst Ken Leon told the wire service.

Meanwhile, Bloomberg reports that another big index client, BlackRock, is standing by MSCI.

"MSCI is the gold standard of global and international equity indexes," stated Mark Wiedman, global head of BlackRock's iShares [profile] unit. 

Edited by: Neil Anderson, Managing Editor

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