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NEW YORK : US investment bank Morgan Stanley was again under fire on Wall Street on Friday, making it a candidate for a recapitalization from the US government, analysts said.
Shares in the group, one of only two independent investment banks left on Wall Street, have lost 66 percent of their value in the last week.
The future of the bank had looked secure after Japanese peer Mitsubishi UFJ Financial Group (MUFG) said it would buy nearly a quarter of the company for 9.0 billion dollars thereby injecting much-needed capital.
The deal received a greenlight from US federal authorities on Monday and could be concluded next Tuesday after a mandatory legal delay.
But the stock is under so much pressure that investors are speculating that MUFG might pull out of the deal despite its assurances to the contrary.
Shares in Morgan Stanley were down 41.85 percent in New York at 7.24 dollars in early afternoon trading.
This makes the whole company worth less than the 9.0 billion dollars that MUFG has promised to invest in exchange for a minority stake of 21 percent.
Morgan Stanley and MUFG declined to comment on the deal on Friday. MUFG rejected suggestions on Wednesday that it would back down on its deal.
Ratings agency Moody's Investors Service added to the gloom surrounding the company when it said it was considering downgrading its long-term debt rating.
Moody's noted that Morgan Stanley had a good liquidity profile, but said that an extended downturn in global capital markets would hurt the company's revenue and profits in 2009.
Rival rating agency Standard and Poor's said it expected MUFJ "to pursue (the) purchase of a sizeable stake in Morgan Stanley despite the falling stock price, and we expect the deal to be consummated within the next week."
Ultimately, Morgan Stanley could ask the US Treasury for capital. Treasury Secretary Hank Paulson suggested this week that the government could buy stakes in banks as part of its rescue bill, which would amount to a partial nationalization.
Under the rescue plan, known officially as the Troubled Asset Relief Program (TARP), the US Treasury is authorized to buy up toxic debt from banks and buy stakes in them.
"Paulson said in his statement on Wednesday that he has the authority to do that (buy stakes) in the bill and of course we are going to use all the authority that we have," said a spokesman for the Treasury, Brookly McLaughlin.
"The best-case scenario is that the capitulation and revulsion phase of this extraordinary global bear market will climax today," said independent analyst Ed Yardeni.
"Then on Sunday before the Asian markets open, the world's largest Sovereign Wealth Fund -- the US Treasury's TARP -- will announce the names of 10-15 major financial institutions that will each receive 10 billion dollars in capital," he said.
For investors, the pressure on Morgan Stanley stems from uncertainty about its exposure to losses, particularly complicated securities called credit default swaps which insure buyers against default.
"Morgan Stanley was heavily involved in underwriting credit default swaps. If they're the ones that are holding those swaps, they now owe 20, 30, 40 billions dollars. That's why I think people are selling those stocks," said analyst Marc Pado from financial firm Cantor Fitzgerald.
"I doubt that Mitsubishi would put 20 billion dollars in a company if they thought it could fall."
- AFP /ls
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