Morgan Stanley Plunges on Worries about Exposure to European Banks (MS)

Shares of Wall Street giant Morgan Stanley (NYSE: MS) plunged in Friday’s trading session on worries about the bank’s exposure to European banks.

The stock fell 10.47% to $13.51 on Friday, touching an intra-day low of $13.49. The stock fell to its lowest level since December 2008 after a blog post on Zero Hedge said that the bank was facing risks due to its exposure to French banks.

Although a person familiar with the matter said that Morgan Stanley has zero net exposure to French banks and French sovereign debt, investors panicked on Friday after the cost of insuring Morgan Stanley’s five-year bonds against default rose sharply in the last few days.

Morgan Stanley’s credit default swaps are now more expensive than that of Italian banks Monte dei Peschi and Unicredit and French banks Credit Agricole and BNP Paribas SA, according to Otis Casey, Director of Credit Research at Markit. The bank’s credit default swaps are also more expensive than those of its U.S. peers.

According to Markit’s Casey, Morgan Stanley credit default swaps are among the widest of its U.S. peers in CDS trading and substantially wider than French banks.

Although the debt crisis in the euro zone has been ongoing for almost two years now, none of the U.S. banks were thought be at any risk from the crisis. Reports of Morgan Stanley’s exposure to French banks and the panic in credit default swaps market, however, suggests that this may not be the case.

Morgan Stanley is likely to discuss its exposure to European banks when it reports its third-quarter financial results later this month. The bank’s third-quarter results are expected to be weaker due to the volatility in global financial markets in the third quarter, which hurt trading revenues.

Post Written By: Ed Liston Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.