Thursday, November 10, 2011

Like yelling "Print Money!" in a movie house

US Stocks Tumble As Italy Debt Troubles Escalate

European shares hit as Italian debt risk surges

What's Killing Morgan Stanley Today? Italy
Morgan Stanley‘s bets on Europe are hammering its shares this morning.

What’s hurting Morgan exactly? Well, a quick look at its European debt exposure shows its got loads of Italian debt on its books relative to its exposure in Greece. Morgan’s net exposure to Italy, after its hedged positions, is $1.79 billion, according to its third quarter regulatory filing.

That net exposure includes includes obligations from sovereign governments, corporations, clearinghouses and financial
institutions. Without its hedged positions Morgan’s exposure to Italy is $4.5 billion.

The irony here is that Morgan shares suffered drastic losses in September when there was speculation about its exposure to French banks. In September financial blog ZeroHedge said Morgan’s exposure to French banks was 60% greater than its market cap and more than half its book value. That sent Morgan shares under $13.

The moves in its shares prompted an internal memo from CEO James Gorman who attempted to quell rumors. “In fragile markets, where fear triumphs over common sense, these things are bound to happen,” Gorman wrote. “It is easy to respond to the rumor of the day, but that is not usually productive.”

Italy Bond Attack Breaches Euro Defenses, Contagion Worsens
“The house is on fire,” said Dante Roscini, a lecturer at Harvard Business School and former chief executive officer of Morgan Stanley in Italy.
“The ECB needs to print money and buy Italian bonds, it’s the only way to put the fire out.”

Is Morgan Stanley the next MF Global?

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