Morgan Stanley provided crucial early backing to Market Financial Solutions Ltd. (MFS), a British private credit firm that later collapsed under £1.8 billion ($2.4 billion) of debt. Documents reviewed by Reuters reveal the US investment bank’s involvement, lending credibility to the business. This initial link to MFS founder Paresh Raja’s network was the first publicly documented connection between the firm and Wall Street. MFS specialised in providing bridging loans and buy-to-let mortgages to wealthy UK homebuyers, a business model typical of private credit firms that flourished after post-financial crisis rules curbed risk-taking by major lenders.
In November 2021, Morgan Stanley acquired £50 million ($66 million) of ‘Class A loan notes’ from Earthave Bridging, a Raja-controlled entity that funded MFS, according to a UK Companies House filing. Earthave used these notes to purchase MFS’s mortgages. Morgan Stanley’s early involvement was followed by deals involving other major financial institutions, including HSBC, Barclays, and Wells Fargo. MFS ultimately collapsed in February, owing a significant sum to creditors, according to its administrators, AlixPartners.
The collapse has alarmed regulators, highlighting mainstream financial firms’ exposure to the loosely regulated $3-trillion-plus private credit market. Allegations of misappropriation of company funds have been made against Raja, who a UK judge indicated has since fled to Dubai. While Morgan Stanley’s loan was reportedly repaid with interest, other banks that backed the group suffered heavy losses. Britain’s Financial Conduct Authority launched an investigation into MFS in March, with the Financial Reporting Council also announcing an inquiry into auditors involved with the firm and related companies.
