http://uk.biz.yahoo.com/10102008/325/m-stanley-shares-plunge-mufg-concerns-outlook.html
M.Stanley shares plunge on MUFG concerns, outlook
By Christian Plumb and Michael Flaherty
NEW YORK/HONG KONG (Reuters) - Morgan Stanley shares fell 30 percent in premarket trading on Friday, on doubts about its deal with Mitsubishi UFJ Financial Group Inc and concern about a possible ratings downgrade.
Shares of Morgan Stanley fell below their low for the year at about $8.70 in premarket trading. Worries around Morgan also dragged down its closest rival, Goldman Sachs Group Inc, which slid more than 18 percent to $82.50 in premarket trading.
Morgan Stanley shares have lost about one-half of their value in the last three days on worries that Mitsubishi UFJ may back out of a deal to inject much-needed capital. The plunge came despite assurances from both banks that the deal was expected to close on Tuesday.
Separately, Moody's warned Friday it might cut the long-term debt ratings of Morgan Stanley and Goldman, which would increase their cost of borrowing.
"The Mitsubishi transaction hasn't closed yet ... I think there's a legitimate concern that that deal doesn't go through," said Jon Fisher, a portfolio manager at Fifth Third Asset Management in Minneapolis. "Once (the Moody's announcement) hit last night, people jumped to the Lehman Brothers parallel."
In addition, a report by veteran bank analyst Dick Bove cited potential exposure to Lehman Brothers Holdings Inc, which filed for Chapter 11 bankruptcy protection last month.
But Morgan Stanley spokesman Mark Lake said the bank has immaterial exposure to Lehman Brothers as of now.
'EXTENDED DOWNTURN'
"Moody's review is based upon its expectation that an extended downturn in global capital market activity will reduce Morgan Stanley's revenue and profit potential in 2009, and perhaps beyond this period," the note said.
Still, Moody's noted that Morgan Stanley had moved quickly to reduce risk on its balance sheet and decrease leverage, and said the firm has a "good liquidity profile."
Morgan Stanley shares lost one-quarter of their value on Thursday alone, although some traders attributed the decline so lto the end of a temporary ban on short-selling.
The cost to insure its debt against default rose on Friday, indicating investor concern about its financial stability. The bank's five-year credit default swaps rose to an upfront payment of 28 percent of the sum insured plus 500 basis points a year from 19 percent on Thursday, according to Phoenix Partners Group.
That means it would cost $2.8 million (1.6 million pounds) to insure $10 million of debt plus $500,000 a year.
"The ratings might be cut and if you look at the credit default swaps are kind of blowing out, so I would imagine investors think that there could be some credit event in the horizon," said Ken Crawford, senior portfolio manager of Argent Capital Management in St Louis, Missouri.
"Perhaps (the concerns are) that they need capital and their inability to secure that capital," he added. "We've seen the story before with Lehman and AIG. Maybe Morgan Stanley is the next company to be on the ropes or in deep, deep trouble."
A spokesman MUFG, Tomohiro Kato, said it had no plans to change its investment plans.
That echoed a statement released by MUFG on Wednesday, in which the bank dismissed the speculation it could pull out as rumours with "no basis."
"If Mitsubishi pulls out, the US government will step in as they would not like to see them fail," said Mak of Tai Fook Securities.
Shares of Mitsubishi UFJ fell 8.5 percent to 710 yen, in line with a 9 percent drop in Tokyo's index of bank stocks.
"MUFG seems adamant that the deal is going ahead and will close on the 14th. The market seems determined to test their will," said David Threadgold, banking analyst at Fox-Pitt Kelton Cochran Caronia Waller in Tokyo.
"I very much doubt MUFG will pull out, and (they) probably hope that if they go ahead, that alone would add some stability to Morgan Stanley's share price."
(Additional reporting by Sachi Izumi, Tony Munroe, Dan Wilchins, Juan Lagorio and Elinor Comlay; editing by Jeffrey Benkoe and Steve Orlofsky)
M.Stanley shares plunge on MUFG concerns, outlook
By Christian Plumb and Michael Flaherty
NEW YORK/HONG KONG (Reuters) - Morgan Stanley shares fell 30 percent in premarket trading on Friday, on doubts about its deal with Mitsubishi UFJ Financial Group Inc and concern about a possible ratings downgrade.
Shares of Morgan Stanley fell below their low for the year at about $8.70 in premarket trading. Worries around Morgan also dragged down its closest rival, Goldman Sachs Group Inc, which slid more than 18 percent to $82.50 in premarket trading.
Morgan Stanley shares have lost about one-half of their value in the last three days on worries that Mitsubishi UFJ may back out of a deal to inject much-needed capital. The plunge came despite assurances from both banks that the deal was expected to close on Tuesday.
Separately, Moody's warned Friday it might cut the long-term debt ratings of Morgan Stanley and Goldman, which would increase their cost of borrowing.
"The Mitsubishi transaction hasn't closed yet ... I think there's a legitimate concern that that deal doesn't go through," said Jon Fisher, a portfolio manager at Fifth Third Asset Management in Minneapolis. "Once (the Moody's announcement) hit last night, people jumped to the Lehman Brothers parallel."
In addition, a report by veteran bank analyst Dick Bove cited potential exposure to Lehman Brothers Holdings Inc, which filed for Chapter 11 bankruptcy protection last month.
But Morgan Stanley spokesman Mark Lake said the bank has immaterial exposure to Lehman Brothers as of now.
'EXTENDED DOWNTURN'
"Moody's review is based upon its expectation that an extended downturn in global capital market activity will reduce Morgan Stanley's revenue and profit potential in 2009, and perhaps beyond this period," the note said.
Still, Moody's noted that Morgan Stanley had moved quickly to reduce risk on its balance sheet and decrease leverage, and said the firm has a "good liquidity profile."
Morgan Stanley shares lost one-quarter of their value on Thursday alone, although some traders attributed the decline so lto the end of a temporary ban on short-selling.
The cost to insure its debt against default rose on Friday, indicating investor concern about its financial stability. The bank's five-year credit default swaps rose to an upfront payment of 28 percent of the sum insured plus 500 basis points a year from 19 percent on Thursday, according to Phoenix Partners Group.
That means it would cost $2.8 million (1.6 million pounds) to insure $10 million of debt plus $500,000 a year.
"The ratings might be cut and if you look at the credit default swaps are kind of blowing out, so I would imagine investors think that there could be some credit event in the horizon," said Ken Crawford, senior portfolio manager of Argent Capital Management in St Louis, Missouri.
"Perhaps (the concerns are) that they need capital and their inability to secure that capital," he added. "We've seen the story before with Lehman and AIG. Maybe Morgan Stanley is the next company to be on the ropes or in deep, deep trouble."
A spokesman MUFG, Tomohiro Kato, said it had no plans to change its investment plans.
That echoed a statement released by MUFG on Wednesday, in which the bank dismissed the speculation it could pull out as rumours with "no basis."
"If Mitsubishi pulls out, the US government will step in as they would not like to see them fail," said Mak of Tai Fook Securities.
Shares of Mitsubishi UFJ fell 8.5 percent to 710 yen, in line with a 9 percent drop in Tokyo's index of bank stocks.
"MUFG seems adamant that the deal is going ahead and will close on the 14th. The market seems determined to test their will," said David Threadgold, banking analyst at Fox-Pitt Kelton Cochran Caronia Waller in Tokyo.
"I very much doubt MUFG will pull out, and (they) probably hope that if they go ahead, that alone would add some stability to Morgan Stanley's share price."
(Additional reporting by Sachi Izumi, Tony Munroe, Dan Wilchins, Juan Lagorio and Elinor Comlay; editing by Jeffrey Benkoe and Steve Orlofsky)
