M.Stanley under pressure on MUFG concerns, outlook

HONG KONG/TOKYO (Reuters) - Pressure mounted on Morgan Stanley on Friday, with investors unconvinced about its deal with Mitsubishi UFJ <8306.T> and two analyst reports citing concerns about the bank's earnings outlook.

Shares of Morgan Stanley have lost nearly half their value in the last three days, on worries Mitsubishi UFJ may back out of injecting the much-needed capital. The plunge came despite promises from both banks that the deal was expected to close on Tuesday.

"Until the deal is finalized, there's uncertainty in the market," said Marco Mak, head of research, at Tai Fook Securities. "There are so many rumors. It's basically a loss of confidence."

The two analyst reports, one by brokerage Ladenburg Thalman, the other by ratings agency Moody's, came at an extremely delicate time for the bank, with its stock headed toward single digit territory.

After cutting Morgan Stanley's price target, Richard Bove, Ladenburg Thalman's veteran Wall Street analyst said the pressures on the company is "enormous" and that one of the concerns is that Morgan is believed to be counterparty to "numbers" of Lehman Brothers transactions. Lehman Brothers filed for bankruptcy last month.

"We have seen this movie before," Bove said. "One must hold one's breath at the moment and hope that this is a different movie."

Separately, Moody's on Friday warned it might cut the long-term debt ratings of Morgan Stanley and Goldman Sachs , which would increase their cost of borrowing.

"Moody's review is based upon its expectation that an extended downturn in global capital market activity will reduce Morgan Stanley's revenue and profit potential in 2009, and perhaps beyond this period," the note said.

Morgan Stanley shares lost a quarter of their value on Thursday alone, although some traders attributed the decline to the end of a temporary ban on short-selling.

The cost to insure the U.S. bank's debt also rose, indicating investor concern about its financial stability.

However, a spokesman for the Japanese bank, Tomohiro Kato, said it had no plans to change its investment plans.

That echoed a statement released by MUFG on Wednesday, in which the bank dismissed the speculation it could pull out as rumors with "no basis."

"If Mitsubishi pulls out, the US government will step in as they would not like to see them fail," said Mak, of Tai Fook Securities.

Morgan Stanley shares fell 26 percent to $12.24.

Shares of Mitsubishi UFJ fell 8.5 percent to 710 yen, in line with a 9 percent drop in Tokyo's index of bank stocks <.IBNKS.T>.

"I think the concern might not just be that the deal won't go through, but (that) the deal might go through and won't necessarily produce value," said Neil Katkov, senior vice president of Asia research at consulting firm Celent.

(Additional reporting by Sachi Izumi)

(Editing by Anshuman Daga)

WhatsAppFacebookTwitterLinkedinBeloudBluesky