Morgan Stanley article updated with management and analyst commentary.NEW YORK ( TheStreet) - Shares of Morgan Stanley ( MS) were rising Wednesday after the investment bank offered more details on its exposure to Europe, arguing that its actual risk from the European crisis is much less than previously reported. The investment bank said its total exposure to the peripherals- Greece, Italy, Ireland, Portugal and Spain- as of September 30 stood at $5.68 billion. Net funded exposure after hedges on net counterparty exposure and lending was approximately $2.1 billion. That was in line with numbers disclosed last quarter. The latest disclosure, however, breaks out its exposure to each of the countries, offering further details on its inventory, counterparty exposure, funded lending and purchase of credit protection. The investment bank has the most exposure to Italy at $4.5 billion. Net of hedges on counterparty exposure and lending amounting to $2.78 billion, its exposure to Italy stood at $1.79 billion or 85% of its peripheral exposure.
Shares of Morgan Stanley have shed more than 20% in the last three months. Morgan Stanley CEO James Gorman last month attempted to quell the rumors in a memo to employees. "In fragile markets, where fear triumphs over common sense, these things are bound to happen," the CEO said in an internal memo. "It is easy to try to respond to the rumor of the day, but that is not usually productive." The latest disclosure might help calm some of these fears. "Morgan Stanley is clearly increasing its disclosure to reassure creditors and counterparties," Sanford Bernstein analyst Brad Hintz told TheStreet in an email. "Essentially the company is trying to end speculation among players in the CDS market by disclosing everything that worried the market." Hintz pointed out that the investment bank bought back debt during the quarter. "This is a very important disclosure to banks, risk managers at other firms and fixed income market participants because this disclosure is prima fascia evidence that the company was NOT facing a funding run in August." The analyst reasoned that Morgan Stanley will not attempt to buy back its debt if its management felt it could not fund the firm. Banks have actually been able to benefit from the widening spreads because of an accounting quirk that allows them to book a profit from the falling value of its own debt. Morgan Stanley beat estimates for the third quarter by a wide margin, but the gains came principally from its higher-than-anticipated debt valuation adjustment or DVA gain of $3.4 billion. Other banks including JPMorgan Chase ( JPM), Bank of America ( BAC) and Citigroup ( symbol) have reported gains close to $2 billion. as Goldman Sachs ( GS) saw smaller gains because it hedges against moves on its credit spreads. But wider spreads could potentially pose funding problems for investment banks such as Goldman and Morgan that are more dependent on wholesale funding. The higher perception of risk could also increase their collateral requirements and affect client relationships.
Goldman Sachs said on Tuesday that they were unaffected by the higher CDS spreads. Porat said during the conference call that the widening credit spreads had been frustrating but that they had had productive conversations with clients on the many changes that had been made to their business model since the beginning of the crisis. "We have seen some moderating of spreads and hopefully the incremental information should have some effect," Porat said. Shares of Morgan Stanley were rising 2.5% to $17.01 in morning trading. --Written by Shanthi Bharatwaj in New York >To contact the writer of this article, click here: Shanthi Bharatwaj. >To follow the writer on Twitter, go to http://twitter.com/shavenk. >To submit a news tip, send an email to: firstname.lastname@example.org.