The American bank Morgan Stanley faces a critical weekend as it awaits a crucial $9bn investment from Japan's Mitsubishi bank to fend off a crisis of confidence among investors which is threatening its survival.
The 73-year-old firm has been battling persistent rumours about its financial condition in a market smarting from the collapse of rival Wall Street banks Lehman Brothers and Bear Stearns.
Shareholders dumped stock in their droves yesterday after becoming alarmed by a warning that ratings agency Moody's is considering downgrading Morgan Stanley's creditworthiness. The bank's shares plunged by 22% in New York, taking their total week-long fall to 60%.
Financial firms sold credit default swaps - a form of insurance against a company defaulting on its debt - to investors in Lehman's bonds and those betting on the bank's creditworthiness. These companies will now be forced to pay out 91.4 cents in the dollar. The figure is more than market expectations for losses on underlying Lehman bonds.
Banks around the world are hoarding cash partly in preparation for the settlement of these credit derivatives linked to a wave of big corporate defaults and lower than expected recovery levels.
http://www.guardian.co.uk/business/2008/oct/11/morganstanley-banking
