Morgan Stanley battles rumors about its health

Alisa Roth Oct 5, 2011
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Morgan Stanley battles rumors about its health

Alisa Roth Oct 5, 2011
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Tess Vigeland: I mentioned rumors and there’s another bank that’s been fighting them this side of the pond. Morgan Stanley is doing everything it can to reassure investors that its exposure to European banks is — contrary to rumor — not bigger than previously thought.

But in this kind of environment, whispers take on a life of their own. Marketplace’s Alisa Roth has more from New York.


Alisa Roth: The most obvious damage to Morgan Stanley so far has been its share price, which at one point this week was down 20 percent. It’s come back since then, but people are still clearly worried about the bank.

Brad Hintz follows financial institutions at Sanford Bernstein. He’s also a former treasurer at Morgan Stanley. He says the rumors — which started with a post written under a pseudonym on a financial blog — unfairly single out Morgan Stanley.

Brad Hintz: Who has potential European risk? Anyone who’s a major capital markets firm.

Hintz calculates Morgan Stanley has less than $2 billion of exposure to French banks; it’s a fraction of the $39 billion cited by the blog.

But, as we saw with Lehman Brothers and Bear Stearns, rumors can be dangerous. Charles Whitehead is a law professor at Cornell University.

Charles Whitehead: Rumors that are circulated can become effectively self-fulfilling prophecies.

Whether they’re true or not. Whitehead says if he were a risk manager doing business with Morgan Stanley:

Whitehead: What I might do is begin to cut my exposure to Morgan Stanley. And that might include not lending as much or lending at a higher cost or requiring more collateral. All of which will impact Morgan Stanley financially.

To make matters worse, the timing is terrible. Morgan Stanley just finished its quarter, which means it can’t disclose any financial details until it reports earnings, sometime in the next few weeks.

On Monday, the CEO told employees to let outside analysts ‘do their own analysis and let the facts speak.’ And yesterday, Morgan Stanley’s biggest shareholder, a Japanese financial group, issued a statement of confidence in the bank.

In New York, I’m Alisa Roth for Marketplace.

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