Morgan Stanley: Not Out of the Woods

Amidst all the enthusiasm about the Dow rising 5% in its opening minutes, it's worth noting that Morgan Stanley stock is up a disappointing 60%.

I'm serious. At $15 a share, Morgan Stanley is still trading at only half its book value: it's not even back to where it was on Wednesday. And this is after the bank sealed its deal with MUFG -- a deal which gives the Japanese preferred stock which converts at $25.25 per share, and which came with the clear imprimatur of Treasury.

What this means is that Morgan Stanley is still not out of the woods. MUFG's $9 billion is welcome, but the market still expects further capital to come from Treasury -- and expects Paulson's Treasury to drive a hard bargain. Looking at the magnitude of the sums which the UK is injecting into its systemically-important banks, there's still a good chance that Morgan Stanley will be, effectively, nationalized.

Comments

[marvinthema...:]

Are you for real? Paulson has publicly state that shareholders will be protected.

2008 Oct 13 11:42 AM

[PastTense:]

Why would anyone expect "Paulson's Treasury to drive a hard bargain." Paulson is a strong believer in crony capitalism (see his 700 billion dollar bailout plan--a plan whose primary purpose was to transfer losses from the banks (where they belong) to the Federal government.

2008 Oct 13 11:48 AM

[phat cat:]

MS shares are up 50%, looking at the previous volume, I wouldn't be surprised that some are taking profit. There's a good chance that the US is going to nationalize all the financial institutions, and even the whole economy, but I can't see that MS is in imminent danger of that, or any worse than Goldman, Citi or JPMorgan. With 9 billion USD in MS, Mitsubishi UFJ, the largest in Japan and second largest bank in the world, will defend its investment till end.

2008 Oct 13 11:51 AM

[zermux:]

Are you short MS by any chance?

Your irresponsible article, from last week, that MS would not last through the weekend was wrong. I believe that this fear mongering article is also wrong.

Maybe you should be lookiing for a job at Moodys - they also publish views that are almost criminal.

2008 Oct 13 11:53 AM

[marvinthema...:]

Felix, seriously, please explain. When you said "nationalized" did you mean equity holder will be more or less wiped out like AIG, FNM, FRE? That contradicts what Paulson said (non voting rights, protect shareholders, etc.)

I was long from 7.65 and sold for double this morning. But I am still curious what you mean exactly or are you just ranting?

2008 Oct 13 12:07 PM

[Pete1981:]

Felix, where do you get your book value numbers? I thought the 8/31 number was $31 and change. Now with the MUFG investment of 21% that would seem to lower it to around $24.75. So with the stock trading at $16 it is trading at 65% of book. At $16 it is still a low long term level to book, but the fear is still out there and will take time to fade. I believe that the fact that the MUFG investment got done and got done with a conversion price $.50 above book is long term positive. I think you also have to look at the positives MUFG provides like credit lines among other things.

2008 Oct 13 12:56 PM

[jim collins:]

Your previous articles on MS were completely and totally wrong ("My guess is that at some point over the weekend, Hank Paulson will announce that he's using his new authorities under the TARP to effectively nationalize Morgan Stanley") and I have no doubt this one is equally incorrect. Who's paying you to write this crap?

2008 Oct 13 01:03 PM

[Timmothy Posey:]

Obviously he's short, and obviously he got CRUSHED today. MS is up 76% currently in ONE DAY. How often do you see those types of gains in an investment bank. Plus today is a holiday and we see lower trading volumes.

Felix will of course take the glass-half-empty approach to anything with Morgan Stanley. After predicting their collapse over the weekend (and every day last week as well), we see a big rally and a closing on the $9b deal. And now he is saying "too little, too late." What's next? "Oh, Morgan Stanley doesn't have enough vowels in its name. Therefore it will be nationalized!"?

Get a clue!

2008 Oct 13 01:39 PM

[who:]

I'm bullish on MS after MUFG deal was announced. MUFG closed the deal with major discount to the market price and off course MUFG went thru MS books and saw value.

2008 Oct 13 02:41 PM

[kris23:]

Obvi MUFG saw something valuable in MS or they wouldn't of shelled out 9 mill. I'm also feeling bullish about MS right now, although I do think the 84% increase today is reflecting some overly optimistic investors.

2008 Oct 13 03:48 PM

[tojm:]

Felix Salmon is one of the most frequently idiotic bloggers on Seeking Alpha. Haven't you noticed?

2008 Oct 13 06:23 PM

[tojm:]

Felix Salmon is one of the most clueless bloggers I've ever read. He posts his useless opinions almost daily.

2008 Oct 13 06:24 PM

[phat cat:]

Let's not bash clueless bloggers. Without opposite views, this website will be totally boring. Just like Fitch who just downgraded MS credit rating, this is what makes the market interesting. After all the turmoil, we, at least the more astute investors, should be able to separate the good from the bad and from the evil. I will put the rating agencies in the bad sector, angels like Buffet and UFJ in the good sector, and those who spread malicious rumors and try to benefit from chaos in the evil sector.

2008 Oct 13 09:49 PM

[Timmothy Posey:]

Very clueless. And on top of the $9 billion today from Mitsu, Paulson just gave $10 billion to Goldman and Morgan Stanley each. So that's $19 billion in one day. And a blanket guarantee of the bank's debt. Let me guess, that's still not enough?

2008 Oct 14 12:19 AM

[vreporter:]

Stock is now at $22 and the strategic plans from an MUFJ alliance aren't even on the drawing board yet.

Don't worry, you'll catch on soon enough - and then it will be time for me to sell those Friday purchases.

Welcome to a world of reality...

2008 Oct 14 09:10 AM

[bebido:]

MS to be nationalized? Right up your alley you socialist/communist.

2008 Oct 14 09:13 AM

[ashizashiz:]

Does anyone watch Star Trek?

There is a great Star Trek episode from the late 1960s entitled “Specter of the Gun”. Kirk, Spock, McCoy, Scotty and Chekhov are compelled to fight Wyatt Earp and his gang in a showdown at the O.K. Corral. Curious aliens have, of course, orchestrated the battle: some kind of a moral psychodrama. Anyway, in this episode Mr. Spock develops a “knock-out” gas from ingredients found in Doc Holiday’s office. The protagonists logically figure that if they can render the Earp Gang unconscious, then they won’t have to fight them at the O.K. Corral. (And as we know, the Earp’s defeat the Clanton’s at the gunfight at the O.K. Corral. And as Mr. Spock so aptly points out, “history cannot be changed.”)

All are certain that the gas will work; but just to be sure, Scotty volunteers to be the test subject for the agent. Spock, for one, is spellbound, when the potion fails to work. “Fascinating” he quips. Spock goes on to explain the enormity of this paradox. “The potion” he explains, “must work. By all laws we know, it simply cannot fail. And yet it has failed”. Spock goes on to theorize that a massive manipulation of the crew’s brain patterns must be occurring. He also explains that this knowledge, if used correctly, can save the crew from certain demise at the O.K Corral.

Back to 2008. At some point, the massive manipulation of our brains, orchestrated by Spanky Paulson and all of his uber-wealthy cronies, will end. Reality will intrude. The global economy MUST crash because there are simply too many dollars "worth" of worthless assets gathering dust in the safes and hard drives and account ledgers of the world's financial instutions. Tens of Trillions of dollars worth! And no amount of mass hypnosis (in the form of 'pundits optimism'), or empty words (in the form of government guarantees on EVERYTHING), or spin can change reality. Get that? Reality cannot be changed.

2008 Oct 14 10:13 AM