Word: stanleys
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...major U.S. banks - a derivative that provides insurance against the possibility that they might default on their debt, dooming them to bankruptcy. According to data provided by Bloomberg using a model devised by JP Morgan, the price of this insurance currently implies that the odds of banking giant Morgan Stanley defaulting in the next five years are 45%. For Citigroup, another financial linchpin, they're 21%. "This is astonishing," says Weiss. "If Citigroup fails, it could be disastrous...
...cost of insurance against a Morgan Stanley credit default recently exceeded an unheard of 1000 basis points, even after the bailout bill was signed into law. That means the market price for insurance against a $10 million Morgan Stanley default hit $1 million per year, more than 10 times the typical ceiling cost for such insurance in a normally functioning bank sector. "The bailout is a step forward, but it's not at all clear that it's going to work," says Darrell Duffie, professor of finance at the Stanford University Graduate School of Business...
Duffie says sky-high rates for default insurance for 10 of the world's most prominent banks, including Morgan Stanley and Goldman Sachs, demonstrate that there is a lot of market concern about the stability of leading financial institutions, even after the Treasury's recent steps. Another piece of evidence: the premiums on three-month interbank loans remain very high in comparison with overnight loans, signaling banks' deep uncertainty about the sector's stability...
...that included fallout from yesterday's after-hours Bank of America announcement that it will need to cut its dividend and raise $10 billion in capital. The bank, which has acquired Countrywide Financial and plans to do the same with Merrill Lynch, dropped almost 25% on the announcement. Morgan Stanley shares also plummeted 25% on rumors, which the company denied, that Mitsubishi-UFJ may not take an expected 20% stake in the embattled firm. J.P. Morgan was down about 9.5% while Citigroup fell more than...
...crisis. It has. Its banks have an estimated $12 billion in exposure to subprime debt in the U.S., a figure some analysts believe is understated. Its sovereign wealth funds have lost tens of millions of dollars on poorly timed investments in Blackstone, a private-equity group, and Morgan Stanley. And Ping An Insurance, China's second largest insurer, lost 70% on its $2.7 billion investment in Fortis, the Dutch-Belgian financial-services company that collapsed last week...