NEW YORK (Reuters) - Shares in Morgan Stanley plunged as much as 25 percent on Thursday on ongoing concern about the status of a planned $9 billion investment by Japan's top bank, Mitsubishi UFJ Financial Group <8306.T>.
"There is continued unease about the prospects of the Mitsubishi deal going through, and that has also impacted (their) credit default spread," said Matt McCormick, Portfolio Manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.
On Wednesday, MUFG said it had no plans to back out of the investment despite a recent sell-off in the New York-based firm's shares.
Morgan Stanley shares were down 14.5 percent at $14.35 in late morning trading, the biggest decliner on the Amex Securities Broker Dealer index <.XBD>, which was 2.1 percent lower.
Morgan Stanley debt protection costs rose 7 percentage points to around 25 percent upfront, according to an analyst.
"The market is definitely trading on rumors, not news, and if there's any type of potential problem, traders are quick to head for the exits on any stocks, but even more so on financials like Morgan Stanley," said McCormick.
Others suggested that the end of a nearly three-week prohibition on investors' ability to make bearish bets on financial stocks could be a factor.
"You can short Morgan Stanley today," said one trader, speaking on condition of anonymity. "Also that $8 billion infusion will not be enough to fix their problems."
Bank of America Corp's
Both have become bank holding companies to reduce their reliance on short-term capital markets.
(Reporting by Christian Plumb, Jennifer Ablan and Phil Wahba; Editing by Brian Moss)
