Is Morgan Stanley next?

By DAILY MAIL REPORTER
Updated: 19:56 EST, 10 October 2008

Morgan Stanley last night became the latest financial giant to be engulfed by the crisis.

Under pressure: Morgan Stanley CEO Jack Mack

The investment bank, which has around 5,000 staff at its British headquarters in Canary Wharf, saw its share price plunge by almost 30% on Wall Street following fears for its credit rating.

The threat by ratings agency Moody's to downgrade the firm's credit status intensified concern that Morgan Stanley could get frozen out of the wholesale lending markets.

Such a move would put it in danger of going bust.

Its survival has come under intense scrutiny following the collapse last month of its 158-year old rival Lehman Brothers, which had lost the confidence of its creditors.

That collapse was a seismic shock to the financial system.

The ensuing turmoil forced Merrill Lynch to accept a hastily arranged takeover by Bank of America amid fears that it was close to being shunned by the credit market.

Banks are now hoarding their cash and refusing to lend to each other amid fears they won't be repaid.

Apart from funding concerns, Moody's also questioned yesterday how much money Morgan Stanley can expect to make in the current economic climate.

With banks refusing to lend, the mergers and acquisitions machine will grind to a halt, meaning fewer fat commission fees for investment banks such as Morgan Stanley.

Moody's warned: 'An extended downturn in global capital market activity will reduce revenue and profit potential in 2008 and possibly beyond.'

Morgan Stanley may need to raise more than £30bn to bolster its balance sheet so that its creditors will once again have the confidence to lend it cash, say experts.

Given the hammering its shares have taken over recent weeks it may struggle to raise such sums.