Uh oh. The plan to rescue troubled banks doesn’t seem to be working. Despite government promises to back bank debt and inject capital, the credit default swaps are flashing “red alert” signs for Morgan Stanley. Stock is trading off more than 16 per cent right now.
Morgan Stanley was among the weaker performers, with its debt protection costs rising 50 basis points to 480 basis points, or $480,000 per year for five years to insure $10 million in debt, according to Phoenix Partners Group.
Goldman Sachs’ credit default swaps also weakened 40 basis points to 240 basis points, while Merrill Lynch’s swaps widened 20 basis points to 190 basis points, Phoenix said.