, On Tuesday October 4, 2011, 9:26 pm EDT
It is a war that is being fought in large part in the shadows: against anonymous blogs and market whispers, but also against undefined fears about exposure to troubled European banks. While those worries are common to all the big Wall Street banks, Morgan Stanley, as the smallest, is perhaps the most vulnerable among them.
In response, Morgan Stanley executives have been rallying employees and talking to the company's biggest shareholders. The campaign culminated late on Monday, with the Mitsubishi UFJ Financial Group, which owns approximately 22 percent of Morgan Stanley, publicly reaffirming its support for the company.
The push may have helped on Tuesday. Shares of Morgan Stanley rose 12.4 percent, after falling nearly 29 percent since the beginning of September. Morgan and other banks were primarily buoyed on Tuesday by a suggestion that European officials would look at bank recapitalizations.
Nonetheless, there has been a bloodbath in bank stocks. Morgan Stanley is down 48.5 percent for the year; Goldman Sachs has fallen 44 percent; and Bank of America is off about 57 percent. And the cost of insuring Morgan Stanley's debt for five years through credit-default swaps, though it eased on Tuesday, remains at levels that were seen during the financial crisis.
Morgan Stanley's war-roomlike approach to market volatility highlights the difficulties of stamping out speculation in a world of instant, and often anonymous, information.
Its latest round of troubles began on Friday morning before the markets opened at 9:30 a.m. Zero Hedge, a well-read and controversial financial blog, linked to a Bloomberg News article that noted Morgan's credit-default swap spreads had been widening. The Zero Hedge post also directed readers to a previous Zero Hedge article that pegged Morgan Stanley's net exposure to French banks at $39 billion, about $12 billion more than the bank's current market capitalization, reigniting fears about its exposure... read more>>
