A few days ago, Morgan Stanley was apparently well-capitalised. Then rating agency Egan-Jones said the firm needed $30 billion of new equity. Then Moody’s threatened a downgrade. Then the $10 billion Mitsubishi deal seemed ready to fall apart. Now Egan-Jones says Morgan Stanley needs $60 billion.
So what’s the real number? Or, more pertinently, what will it be on Monday morning, when Morgan Stanley tries to reopen for business? God only knows.
In any event, Hank Paulson had better get ready to write one hell of a massive check.
Morgan Stanley’s current market cap, by the way, is only about $11 billion. So, by all rights, Mitsubishi’s $10 billion should buy it one half of the firm (instead of the one-quarter that Mitsubishi agreed to).
If Egan-Jones first estimate of $30 billion is right, Hank will have to write a $20 billion check and Morgan Stanley’s current shareholders will end up with one-quarter of their firm. If Egan-Jones’s new estimate is right, Hank will have to write a $50 billion check, and Morgan Stanley’s current shareholders will end up with 16% of the firm. And that’s if the Mitsubishi deal goes through and Hank doesn’t demand warrants and a huge preferred dividend for his trouble, which, by all rights, he should.
See Also: Treasury Plots Morgan Stanley Bailout