Will Morgan Stanley join BNP Paribas and Societe Generale and turn to disclosure to restore investor confidence? Specifically, will it provide the current asset and liability level data needed for market participants to evaluate the risk of this exposure?
While in far better financial shape than in 2008, Morgan remains .... to some extent most vulnerable of the big, U.S. financial institutions. It also has a tendency for trading stumbles, even if it bucked that trend in the second quarter.
This goes part of the way in explaining why its stock and credit-default swap spreads have been getting hit far harder than peers on fears related to Europe, the slowing global economy and a trading downturn. And it may also be why Morgan seems more susceptible to market chatter.
On Friday, Morgan's shares tumbled 10% and its CDS spreads continued to widen due in part to confusion over its exposure to Europe. A report pegged its "net" exposure to French banks at $39 billion, although this was actually a "gross" figure. On a net basis, which takes into account collateral and hedges, its exposure is zero, according to a person familiar with the matter. And the $39 billion figure is for the end of 2010; the latest gross figure is $21.6 billionIn short, market participants have no way to evaluate the risk of Morgan's European exposure. They are left to guess.
The decrease in Morgan's share price and the increase in its funding costs are well deserved given that Morgan could make use of existing 21st century information technology and provide all market participants with access to the relevant information as of the close of business yesterday.
By not doing so, Morgan is telling market participants that it has something to hide.
... So although much of the current fear looks overdone, and Morgan's about 50% discount to tangible book value seems unwarranted, the storms clouds aren't likely to part anytime soon.Actually, the storm clouds will part as soon as Morgan adopts a policy of letting in sunshine through disclosure of its current asset and liability level data.
With this data, market participants will be able to assess the risk of Morgan and see if their fears are overdone and the 50% discount to tangible book value is unwarranted.