This week was totally unreal. Over the course of the past 6 weeks, since the beginning of September, I have lost over 50% of my net-worth; almost all of which is in my retirement plan.
On the other hand, I have been averaging my cost-basis down in Morgan Stanley, picking up another 150 shares yesterday, and I think about 350 shares today … so I now hold about 1050 shares altogether. A year ago, my 500-ish shares was worth about $33,000.00 … my now 1050-ish shares is worth about $10,000.00.
I still find it hard to believe that Morgan Sanley has lost about 85% of its value per share in that time … and our share price is now about 41% of our book value. Yep, we’re selling for 41-cents on the dollar of our actual value.
The Dow Jones Industrial Average capped the worst week in its 112-year history with its most volatile day ever, as hopes for a major international bank-rescue plan were overwhelmed at day’s end by another wave of selling.
Some investors who normally would be jumping to buy beaten-down stocks after a 22% decline over eight trading days said the relentless declines have left them shell-shocked and unwilling to take new risks. Some spent the day trying to protect themselves from further declines.
The Dow fell 697 points shortly after the opening bell, and remained down most of the day. It surged to a 322-point advance less than half an hour before the close. Investors stampeded into bank stocks as reports circulated that the Group of Seven leading industrial countries were going to agree on a plan to rescue major banks, and that Morgan Stanley had been assured that it would receive funding from a Japanese bank. Hopes briefly blossomed that the worst might finally be over.
And then thing started plowing their way back down again. On the other hand:
Morgan Stanley’s stock has dropped 20% after falling as much as 35%. It is trading at around $9.50 each share. Moody’s is threatening a downgrade. People are nervous.
Should they be?
Deal Journal set out to find out. Morgan Stanley filed its third-quarter 10-K last night. The highlights of the filing show that the bank is not in trouble — or at least, it certainly was not at the end of the third quarter. Deal Journal took a look at some measures of Morgan Stanley’s health, and whether they improved or became sickly.
For now, the deal with Mitsubishi UFJ is still on:
Spokesmen for both Morgan Stanley and Mitsubishi UFJ reiterated on Friday that the deal is set to be completed by Tuesday. There has been speculation in recent days that the transaction could fall apart as the deepening credit crisis makes financial companies even more vulnerable.
Mitsubishi UFJ agreed to pay $6 billion for preferred stock and $3 billion for common stock at a value of $25.25 apiece. That’s 50% more than Thursday’s closing price.
Pressure on Friday also stemmed from concerns that Morgan Stanley’s counter-parties and trading partners could lose confidence and pull their business. That’s one of the reasons Lehman and Bear Stearns were unable to survive, but Morgan Stanley might be in a bit better shape.
The investment bank has about $900 billion of assets and an equity market value of about $8 billion, and is still considered to be one of the world’s most well-capitalized investment banks. A research report from Barclays Capital said Morgan Stanley has between $100 billion and $115 billion of liquid reserves.
And, rumor does have it that Morgan Stanley will be one of the first beneficiaries of the Treasury’s program to purchase equity stakes in banks to help inject more capital into the system.
Treasury Secretary Henry M. Paulson Jr. said Friday that the government would move ahead with a plan to buy stock in financial institutions in an effort to unfreeze the credit markets and resuscitate the economy, and it came at the end of the worst week that Wall Street had ever seen.
“We can solve this crisis,” President Bush said in an address at the Rose Garden on Friday.
Mr. Paulson made his comment shortly after he and the chairman of the Federal Reserve Bank, Ben Bernanke, met with the finance heads of the world’s major economies in Washington and promised to work together to try to ease the financial crisis that roiled the markets for the last week.
Although the Wall Street Journal is still raising some doubts.
Morgan Stanley is valued at about $10.3 billion, after its shares plunged 22% on Friday. Japanese bank Mitsubishi UFJ Financial Group has agreed to pay $9 billion for what was a 21% stake when the deal was announced last month.
The stock’s freefall during the past four weeks leaves Morgan Stanley facing what it is likely to be the most fateful weekend in the investment bank’s 73-year-history. Doubts that the MUFG deal will be completed by Tuesday are haunting Morgan Stanley, despite repeated assertions from both sides that it will go through.
A person familiar with the matter said Friday that Morgan Stanley isn’t renegotiating the terms of its deal. But that could change as MUFG officials pore over Morgan Stanley’s books in New York this weekend and government officials meet in Washington about finding a way out of the global financial crisis.
All in all, it’s going to be interesting to see what happens over the weekend, and how we start off the week on Monday.
Hopefully, it’s not just blind faith on my part, but I actually think that Morgan Stanley will make it through this crisis okay … bloody and bruised, but not out of the game … obviously, our business model is going to be different than it has been for the past 73 years; but change can be a really good thing.