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Tuesday, October 7, 2008

'Depression' time for Morgan Stanley...

Surely, the US economy is sinking into recession. Even the most die-hard of optimists wouldn't predict happier times in the near future. Lehman is sunk. Morgan Stanley and Goldman Sachs are afloat, but barely so. Wall Street should probably be renamed 'Mauled' Street, considering the current scheme of things.

So, what has Morgan Stanley - one of the erstwhile i-banks, done to try and save itself from going under? 

First, it converted itself to a bank holding company. Now, what in the name of God is that?? Nothing too complicated really, if you keep the jargon aside. A bank holding company is nothing but a corporation that controls two or more banks. (I wonder why these Fin. folks have to make everything so damn complicated!!) The advantage of this is that the company will be closely monitored by the Federal Reserve (like our own RBI) and will be able to raise more capital from the market easily. (The how and why of this is somewhat more complicated and needs a separate discussion, so we'll dispense with it for now.)

So, Morgan Stanley had suffered majorly, during 2007's bloodbath - with its share prices having fallen by 60% during 2007. Hence, it had to sell 21% of its stock to Japan's largest bank, the Mitsubishi group, which is shelling out $9 billion for the same. 

Hopefully, the move will shore up investor confidence in the beleagured bank, and give it a new lease of life. You can safely bet that the honchos at Morgan Stanley and other top banks are praying for it. :)