Morgan Stanly has roughly $39 billion in net exposure to the large French
banks
Morgan Stanley CDS Spreads Widen on Eurozone Worries
The cost of protecting against a default by Morgan Stanley in the CDS market
is rising this morning as investors once again scratch their heads about
the bank’s exposure to Europe.
Morgan Stanley’s 5-year CDS spread is up 3% to 455 basis points, according
to Markit data, the highest since March 2009.
Meanwhile, Bank of America’s spread is also up 3% this morning to 410 basis
points, a fresh record.
Morgan Stanley’s spread is wider than for troubled Italian banks UniCredit
and Intesa Sanpaolo, according to Joseph Brusuelas, senior economist at
Bloomberg, who writes:
First, Morgan Stanly has roughly $39 billion in net exposure to the large
French banks. It has an additional $1.6 billion in exposure to Italian Banks
and $8.9 billion to German banks. The exposure to the French banks alone
exceeds the market capitalization of the firm. The data can be found at this
link inside the U.S. Securities and Exchange Commission.
Second, this past weekend the US Office of the Comptroller of the Currency
issues its Quarterly Report on Bank Trading and Derivatives for the second
quarter of 2011. Inside the report it noted that Morgan Stanley has $1.793
trillion—yes trillion- in outstanding derivatives exposure.
However, unlike the five major banks with large credit derivative exposure—
JP Morgan, Bank of America, Citibank, Goldman Sachs and HSBC—that exposure
is not located in the relatively easy to hedge plain vanilla interest rate
swaps. Rather Morgan Stanley’s exposure is located in far more dangerous
and riskier foreign exchange derivative contracts. Roughly 98.3% of Morgan
Stanley’s exposure is located in FX contracts. The data on this can be
found here on table 3 of the OCC report mentioned above.
It is worth mentioning here the caveats about the CDS market raised by my
colleagues at the WSJ earlier this week: These things are thinly traded.
Morgan Stanly has roughly $39 billion in net exposure to the large French
banks
