Photo: Morgan Stanley
Morgan Stanley is up today after the firm eased investors’ concerns about its exposure to French banks, for one.Back in September, Zerohedge called attention to Morgan Stanley’s 2010 10-k, which said that Morgan had $39 billion in exposure to French banks. Morgan shrunk these gross exposures by $17.4bn during 1Q11 to $21.6b billion, according to an analyst note, however rumours continued to hammer the bank. Traders were sending Morgan’s CDS prices (how much it costs to insure Morgan’s debt) so high that it became incredibly expensive for Morgan to hedge and issue debt, causing even more pain because it means doing less business with clients and less credit trading. CDS was trading at 317 basis points on September 20th, and rose to over 400 basis points on September 22, the day Zerohedge posted its article, until peaking at 582.655 on October 3rd. Now they’re at 304 down from 315 yesterday, meaning if they’re insuring a million dollars, it costs around $30,000.
Now, Morgan Stanley’s stock price is also rising, for a few reasons. One, the firm reported earnings this morning and, even though it beat expectations only because of a large ($3.4 billion) accounting gain (caused by a decline in the market value of its own debt (a so-called Debt-Valuation Adjustment, or DVA), its trading business, a weak point at other firms, looks good (also because of the accounting change): Revenue from its trading business more than doubled from a year earlier and climbed 24% from the second quarter, as Reuters writes.
Also, Morgan Stanley released figures dispelling rumours that they still had Eurozone exposure as high as they did at the end of 2010. The firm said it has:
- $1.53 billion in exposure to France, but almost none on a net basis (negative $286 million including hedges)
- $5.6 billion to Greece, Italy, Ireland, Spain and Portugal
- $2.1 billion net