Exclusive-Morgan Stanley was among first global banks to back MFS before boom and bust

By Naomi Rovnick

LONDON, June 25 (Reuters) - Morgan Stanley was among the first Wall Street backers of Market Financial Solutions Ltd., lending credibility to the British private credit business before its boom and later collapse under $2.4 billion of debt, documents reviewed by Reuters show.    

The U.S. investment bank provided early backing to MFS founder Paresh Raja as the former drinks store owner expanded his UK mortgage business, the documents show.    

In November 2021, Morgan Stanley bought £50 million ($66 million) of "Class A loan notes" from Earthave Bridging, a business controlled by Raja that funded MFS, according to a loan document filed with UK Companies House. Earthave sold the notes to buy MFS's mortgages and later repaid investors, according to its 2021 and 2024 accounts.

Morgan Stanley's link to Raja's complex network, reported here for the first time, was followed by deals involving major banks including HSBC, Barclays and Wells Fargo. MFS's collapse has alarmed regulators, highlighting how exposed mainstream financial firms may be to the loosely regulated $3-trillion-plus private credit market.    

Morgan Stanley declined to comment for this article. 

Filings reviewed by Reuters show its loan to Earthave was repaid with interest. Banks that backed the group later suffered heavy losses.

REGULATORY INVESTIGATIONS

The 2021 Morgan Stanley deal marked the first publicly documented link between Raja, MFS and Wall Street. It came at the start of a global rush into private credit by institutions ranging from insurers to small public pension funds. 

MFS collapsed in February owing £1.8 billion ($2.4 billion) to creditors, according to its administrators, AlixPartners. Some creditors have accused Raja of misappropriating company funds, according to UK court filings reviewed by Reuters. In a March court judgment, a judge said Raja had apparently since fled to Dubai.

AlixPartners declined to comment. Raja's representative, Salamander Davoudi of Tancredi Intelligent Communication, also declined to comment. 

MFS provided bridging loans and buy-to-let mortgages to wealthy UK homebuyers, a prime example of private credit firms that flourished after post-financial crisis rules curbed risk-taking by major lenders.  

Big banks later built exposure to the lightly regulated private credit sector, which grew to about $3.1 trillion before a wave of defaults and insolvencies prompted some investors to pull money out.    

There were "serious and unresolved questions regarding the management and governance" of MFS, Britain's chief insolvency judge said in a ruling in late February, adding that multiple large financial institutions had become creditors.

Raja struck deals with domestic and regional banks channelling funds into MFS from at least 2015, a Reuters review of filings from 78 companies he controlled showed.

In 2025, Raja-controlled companies raised hundreds of millions of pounds for MFS from global banks, including Wells Fargo, which invested £142 million in October last year according to insolvency filings. 

Wells Fargo declined to comment.

Britain's Financial Conduct Authority opened an investigation into MFS in March. The country's Financial Reporting Council announced on June 11 an investigation into a group of auditors involved with MFS and related companies.

The FRC declined to comment and the FCA did not immediately respond.

($1 = 0.7557 pounds)

(Reporting by Naomi Rovnick in London. Editing by John O'Donnell, Elisa Martinuzzi and Mark Potter)