Is Morgan Stanley Telling the Truth about its Condition?


Liquidity concerns are swirling around Morgan Stanley. Worries of defaults by European banks or governments are eroding the value of its assets and derivatives contracts. Hedge funds are so concerned that they have begun to withdraw cash from their prime brokerage accounts at Morgan Stanley. In the face of these developments, Morgan Stanley is telling investors not to worry, that its liquidity is strong.

Investors have heard these types of assurances from Morgan Stanley before. In 2008, in the wake of the collapse of Lehman Brothers, Morgan Stanley nearly collapsed as hedge funds withdrew their funds from its prime brokerage unit. On the brink of collapse from that run on the bank, Morgan Stanley received $107 billion in government bailout loans, by far the largest received by any U.S. bank. Nevertheless, on September 29, 2008, at the height of its borrowing, Morgan Stanley reported that its liquidity was “strong,” without mentioning its dependence on the government lifeline.

The threat of another hedge fund run on Morgan Stanley appears present today. It is exacerbated by Morgan Stanley’s reportedly heavy reliance on such “wholesale funding” to operate.

Moreover, the cost of credit default swaps insuring against a default by Morgan Stanley has soared, indicating a higher risk of such a default.

Today, as in 2008, Morgan Stanley insists that investors are not to worry. It claims to have taken steps to reduce its vulnerability to the European debt crisis and another run on the bank.

Atlanta attorney J. Boyd Page quipped, “This may be a situation where ‘the lady doth protest too much, methinks.’ The same people said the bank’s liquidity was strong in 2008, when the bank was on the brink of collapse. Can we really believe they’re telling the truth this time?”

Page Perry is an Atlanta-based law firm with over 150 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. For further information, please contact us.