In a bad day for almost the entire stock market, bank and brokerage stocks have been particularly lousy. And the rumor mill is churning.
Philadelphia Stock Exchange/KBW Bank Index
was off 4.4% and the
American Stock Exchange Broker/Dealer Index
was off 5.8%.
One of the chief culprits for the sector's performance has been
Morgan Stanley Dean Witter
Morgan today effectively denied rumors that it has seen substantial losses on its junk bond desk. The firm, echoing comments made in this morning's
Wall Street Journal
, said the rumors of their losses have been greatly exaggerated.
Morgan shares were lately trading down $7.63, or 8.3%, to $84.25. They had traded as low as $83.81 before the denial.
Wall Street was rife with chatter this morning that Morgan was sitting on a huge amount of telecom paper that has gone sour. To make matters even worse, Morgan's co-head of high-yield bonds, Dwight Sipprelle resigned yesterday. According to fixed income sources, Sipprelle had been rumored to be on the way out for a couple of weeks.
"The rumors are they had hundreds of millions in positions like
," said a high-yield fund manager who spoke on the condition of anonymity. "That company's blown up."
ICG, a competitive local exchange carrier (or CLEC), has seen its business crumble of late. The company had a significant amount of outstanding junk bond debt and the stock was lately trading at 41 cents a share.
Why the Morgan Stanley rumors have filtered into the stock market today is unclear. That telecom-related junk bonds have been slipping is not exactly news, and ever since Morgan missed its third-quarter earnings estimates two weeks ago, there's been talk of how they were hurt by substantial junk bond losses. Perhaps it is Sipprelle's resignation, reported in
The Wall Street Journal
this morning, that did it. Or perhaps it is just a market that, pummeled repeatedly over the last month, is vulnerable to rumor.
Several traders have mentioned chatter of stocks being sold to cover bond losses -- which is so reminiscent of the
Long Term Capital Management
crisis that it sounds made up.