Morgan Stanley Lands on Its Feet, for Now
10/13/08 - 05:31 PM EDT
Dan Freed
Morgan Stanley (MS Quote - Cramer on MS - Stock Picks) shares rallied 86% Monday after the firm closed a big equity infusion that the market had feared might not happen, but it may be too soon to say the firm's future is secure.
Morgan Stanley and Mitsubishi UFJ Financial (MTU Quote - Cramer on MTU - Stock Picks) on Monday closed a sweetened deal that gives Japan's largest bank a 21% ownership stake in the struggling Wall Street firm. A deal was originally announced Sept. 22, but Morgan Stanley investors fretted whether it would close since shares last week slipped below what Mitsubishi originally had agreed to pay. "Morgan Stanley almost got put out of business last week because the market was worried about them," says Ben Wallace, analyst at Grimes & Co. The Westborough, Mass.-based wealth manager does not own shares of either Morgan Stanley or Goldman, for fear that they are too vulnerable to sudden shifts in market sentiment. Morgan Stanley rival Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) also has been hit by plummeting confidence in the business models of traditional investment banks, which has led to the disappearance of Bear Stearns and Lehman Brothers, and pushed Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) to agree to sell itself to Bank of America (BAC Quote - Cramer on BAC - Stock Picks) on Sept. 15 for about 40% of where it had traded a year earlier. Morgan Stanley and Goldman have taken several steps to try and stave off such a fate, including registering with the Federal Reserve as bank holding companies and securing large equity infusions from outside investors. In addition to the announcement of Mitsubishi's Morgan Stanley investment last month, Goldman benefited from a $5 billion investment from Warren Buffett's Berkshire Hathaway (BRK-A Quote - Cramer on BRK-A - Stock Picks) a day later.
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