For weeks, Morgan Stanley has been the envy of many Wall Streeters. While Lehman Brothers crumbled and Merrill Lynch was forced to flee into the arms of Bank of America, Morgan Stanley seemed to have navigated through the minefield of September’s banking apocalypse as an independent, if transformed, financial institution. But this morning questions of its survival have returned.
At Merrill Lynch, in particular, many have pointed to Morgan Stanley’s survival in criticising Merrill chief’s John Thain’s decision to sell the firm. If only he had waited for the bailout, perhaps the letters MER wouldn’t have to vanish from the ticker.
But the bailout isn’t working. Banks are still stumbling. Hank Paulson and Ben Bernanke are scrambling to revamp the bailout as a capital infusion for equity plan. Morgan Stanley, which lost almost a quarter of its market cap in early trading this morning, is no longer a symbol of Thain’s cowardice. Indeed, it’s looking more and more like a symbol of John Mack’s hubris.
There are many competing theories about what is ailing Morgan Stanley today. The first has an amusing snake-eating-its-tale quality about it. It hold that that the widening CDS spreads and falling share price may drive Mitsubishi UJF, whose executives are meeting with Mack tonight in London, to rethink its capital infusion. Another says that the redirecting of the TARP into an equity purchase fund may be aimed directly at rescuing Morgan Stanley. We don’t have information either way but we welcome your ideas.