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Morgan Stanley Not Out Of The Woods

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by Felix Salmon
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Oct 13 2008 9:50am EDT

Morgan Stanley: Not Out of the Woods

Amidst all the enthusiasm about the Dow rising 5% in its opening minutes, it's worth noting that Morgan Stanley stock is up a disappointing 60%.

I'm serious. At $15 a share, Morgan Stanley is still trading at only half its book value: it's not even back to where it was on Wednesday. And this is after the bank sealed its deal with MUFG -- a deal which gives the Japanese preferred stock which converts at $25.25 per share, and which came with the clear imprimatur of Treasury.

What this means is that Morgan Stanley is still not out of the woods. MUFG's $9 billion is welcome, but the market still expects further capital to come from Treasury -- and expects Paulson's Treasury to drive a hard bargain. Looking at the magnitude of the sums which the UK is injecting into its systemically-important banks, there's still a good chance that Morgan Stanley will be, effectively, nationalized.

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