After a ban on short-selling was lifted at around midnight last night, Morgan Stanley is off around 16% in late-morning trading Thursday. Rumors are swirling around New York dealing desks, and they range form the most bearish spectrum to the most bullish. One rumor has it that Mitsubishi UFJ may have pulled out of its $9 billion investment in Morgan Stanley (despite official protestations to the contrary by both parties), to the Japanese bank wanting to nab the whole pie at $12 a share.
Welcome to the world of Asian banking. Largely colorful, and dominated by a constant rumor-flow, share prices can often swing wildly in the space of hours. That's unlike in the U.S., where rumors do exist (obviously), but in a much more toned-down fashion. The problem is that when Asian-style rumors take hold of a U.S.-scale market, the consequences are potentially magnified enormously. And so it is for Morgan Stanley.
Because much of the information coming out of news rooms and dealing floors in New York tends to be pretty accurate by global standards, market participants and financial journalists in the west are unprepared when someone says that, for instance, Mitsubishi has pulled out of buying an ailing U.S. bank. Japan is a long, long way away. If you've ever tried getting through to someone at a bank over there, you'll know how tough it is just getting the right person on the other end of the line, let alone getting any kind of statement. Zip-lock doesn't even describe the banking culture. This makes garnering any meaningful information or comment doubly frustrating.
All the above is having an adverse impact on Morgan Stanley's share price this morning. Instead of buying (or selling, as the case might be) into the current rumor-flow however, investors should think like their Asian counterparts in such situations: with a little dose of critical pragmatism.
First of all, Mitsubishi has taken the extraordinary step of announcing its intention to purchase Morgan Stanley. Again, if you know Japanese banks, you realize just how unusual this is. Secondly, as I've pointed out before, this deal makes a lot of sense for Mitsubishi: there's little reason why they'd want to abandon it (especially at such a late hour).
Finally, the U.S. federal government has announced its intention to potentially buy shares of banks, a la its British counterparts. Presumably, Morgan Stanley qualifies in this respect. That can only be a positive thing for the stock price.
Simply put, short-selling Morgan Stanley right now is not only illogical, it could be really dangerous. This is a bank that too many parties are too heavily vested in right now to see it fail.
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