Of all the blue-chip Wall Street securities firms, Morgan Stanley seemed one of the least likely to get thumped by the subprime- mortgage crisis. The firm is a bit player in underwriting the securities known as collateralized-debt obligations that have rocked Merrill Lynch, Citigroup and others, ranking a distant No. 10. So why are some on Wall Street starting to sweat about Morgan Stanley's exposure to this business? Two analysts are projecting the firm may take a fourth-quarter write-down of $3 billion to $6 billion. The estimates by analysts David Trone of Fox-Pitt, Kelton and Mike Mayo of Deutsche Bank AG contributed to Morgan Stanley stock's falling $1.08, or 1.94%, yesterday in New York Stock Exchange trading to $54.51 a share. Mr. Trone projected the possible write-downs at $4 billion to $6 billion, Mr. Mayo $3 billion to $4 billion. While the firm may not have underwritten as many CDOs, which are securities backed by pools of assets such as mortgages, Morgan Stanley may have been involved in transactions with other firms that left it with exposure to CDO risks, market participants say. Such proprietary trading with the firm's own money already cost the firm $480 million on money-losing quantitative stock trading in the third quarter, with $390 million in losses occurring on a single day in August, according to regulatory filings. Asked by a CNBC reporter Monday about possible fourth-quarter write-downs, Morgan Stanley Chief Executive John Mack indicated he expected numerous firms would report such hits because market prices have declined. But he wouldn't address specifics about Morgan Stanley. The analysts' estimates are still far less than those disclosed and projected for the top two CDO underwriters, Merrill Lynch and Citigroup, both of whose chief executives lost their jobs over such losses in the past week. The situation at Morgan Stanley isn't considered as dire. But the estimates indicate the pain from such losses may be spreading to other Wall Street firms, which in mid-December will report their results for the fourth quarter ending this month. "Anything that touches CDOs is showing more pain than we thought," Mr. Mayo said. "At first the market assumed mortgage was affecting only a few poor risk managers, and now they're realizing it's going to affect almost every large investment bank," Mr. Trone said in an interview. Morgan Stanley, Lehman Brothers Holdings, Bear Stearns and Goldman Sachs Group all gave their last earnings report in mid-September based on the quarters that ended in August. Both Citigroup and Merrill reported for periods including September, when the debt market downturn worsened, as it has in October as well. Investors appear increasingly nervous about Morgan Stanley. This week, its stock has been weaker than any of its major rivals', falling 7.5% as Goldman declined 2.8%, Merrill fell 1.6%, Lehman dropped 1.2%, and Bear fell 0.2%. Merrill two weeks ago announced an $8.4 billion write-down for its third quarter, ended in September, and analysts estimate it may take another $4 billion or more in hits for the fourth quarter. Citigroup Monday said it faced mortgage write-downs of $8 billion to $11 billion in the fourth quarter after $3.5 billion of third-quarter hits. For its third quarter ended in August, Morgan Stanley reported $940 million in write-downs for buyout-financing commitments, $480 million in quantitative stock-trading losses and a $1 billion drop-off in bond revenue reflecting losses in mortgage-related securities. The firm remains a leader in the most lucrative investment-banking categories, such as stock underwriting and merger advice, commodities and debt trading, and prime brokerage catering to hedge funds, Mr. Mayo said. Even the quantitative stock trading that stumbled in August generated more than $3 billion in profits over the past decade. Mr. Trone characterized the basis for his Morgan Stanley estimate as "educated guesses" tied to the firm's disclosed levels of credit and real-estate exposure. He estimated the firm's exposure to CDOs is about $16 billion and that the write-downs are likely to total 25% of its CDO exposures, or $4 billion. He said the firm could take an additional $2 billion hit on straight mortgages and other risks such as exposure to SIVs, or structured investment vehicles. Another research firm, CreditSights, yesterday estimated potential fourth-quarter CDO hits at $9.4 billion for Merrill, $5.1 billion for Goldman, $3.9 billion for Lehman, $3.8 billion for Morgan Stanley and $3.2 billion for Bear Stearns http://online.wsj.com/article/SB119439956170084701.html?mod=hpp_us_whats_news
not really. i think when they finally throw in the towel and admit the problems that any normal human being knows they have i will probably cover. 15th november is a key date as that is the cut off for filings and any other rubbish they want to declare. in terms of targets i will be happy to cover countrywide when anyone from the board has the bollocks to purchase their own stock. so far - no one has. similar with the us investment banks. no board members want to purhase their own stock. as for the us investment banks morgan stanley in particular and goldman i personally think they are worthless. long goldman puts on a continual basis and will rollover on expiry. on a final note i was reading how jim rogers was short most of the us bank stocks in 87 and got given well below the market for most of his stock shorts. strange he was a buyer that day with one of a few people putting bids in the market and later got blamed for being part of the down move. maybe im wrong and too bearish but for me and having over 20 years trading experience my gut feeling is that something will give soon. had the same feeling when the pound devalued in early 90's.