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Morgan Stanley: Riskier-est Bank On The Street?

  • Written by Syndicated Publisher No Comments Comments
    July 2, 2012

    On Monday, 18 June 2012 I penned ‘Is Morgan Stanley Once Again The Riskiest Bank On The Street?‘. You see, Morgan Stanley has more than a few skeletons in the closet and the upcoming market volatility and dearth of revenues isn’t going to help their situation any. Yesteday, Moody’s chopped two notches off of the Morgan Stanley ratings belt, albeit in the usual ‘too little, too late’ fashion.

    Via ZH: Here We Go: Moody’s Downgrade Is Out – Morgan Stanley Cut Only 2 Notches, To Face $6.8 Billion In Collateral Calls

    • MOODY’S CUTS 4 FIRMS BY 1 NOTCH
    • MOODY’S CUTS 10 FIRMS’ RATINGS BY 2 NOTCHES
    • MOODY’S CUTS 1 FIRM BY 3 NOTCHES
    • MORGAN STANLEY L-T SR DEBT CUT TO Baa1 FROM A2 BY MOODY’S
    • MOODY’S CUTS MORGAN STANLEY 2 LEVELS, HAD SEEN UP TO 3
    • MORGAN STANLEY OUTLOOK NEGATIVE BY MOODY’S
    • MORGAN STANLEY S-T RATING CUT TO P-2 FROM P-1 BY MOODY’S
    • BANK OF AMERICA L-T SR DEBT CUT TO Baa2 BY MOODY’S;OUTLOOK NEG

    Remember, it was collaeral calls that put the nails in Bear Stearns and Lehmans coffin. I made this very clear in both cases – The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear?

    Am I right about the Bear?

    Despite the Bear Stearns negative developments, and my opinion of its value, Bear Stearns has managed to find investors as was mentioned earlier in the insider transaction section. These are accomplished and wealthy investors to boot. My concern is that so many astute, accomplished and economically powerful investors have failed to realize and fully appreciate the depth and breadth of the current real asset recession, burst bubble, and quite possibly asset depression we have recently entered. This has destroyed the value of many bottom fishing value investors, both intitutional and retail.

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    A brief perusal through my site reveals a fairly decent track record of recognizing the potential damage to be done by this “devaluation diaspora”. Only time shall tell the tale of Bear Stearn’s contribution to this list. Twelve months to date, BSC has lost over 50% of its share value and it near ground zero of the housing bubble burst. Observing the share price patterns of the companies who were actually at ground zero shows that a 50% is far from the midway mark when tracking from the peak of the bubble. I am certain their may be financial concerns such as well capitalized investment funds, foreign firms/funds, and/or stateside banks who have, and are considering a buyout. Yet, as I have stated with Ambac Financial, MBIA, Beazer Homes, and Countrywide during similar institutional forays into attempted vulture investing – Caveat Emptor: Seeking the bottom of a bottomless pit is a hazardous venture, indeed.

    To date, I have been blessed with a modicum of accuracy in my research. As always, I am short any company that I am bearish on, and will be long any company that I am bullish on.

    There was also the warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, “Can they monetize those hedges?”

    Those damn rating agencies…

    Of course, we all know how reliable and timely the rating agencies are, right? See Rating Agencies vs Reggie Middleton, Part 3 and the Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts

    Images: Flickr (licence/attribution)

    About The Author

    Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts to uncover truths, seldom if, ever published in the mainstream media or Wall Street analysts reports. Since the inception of his BoomBustBlog, he has established an outstanding track record
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