european banks

DealBook: Regulatory Pressure Drives Commerzbank to Seek Out New Capital

May 14, 2013 by NewsMaker Leave a Comment

LONDON — European banks have gone on a capital-raising binge.

Commerzbank of Germany, the latest entrant, began a heavily discounted effort on Tuesday to raise 2.5 billion euros ($3.2 billion) in new capital.

The push by Commerzbank follows similar moves by other European lenders, which have come under growing regulatory pressure to increase capital reserves to protect against future financial shocks.

Despite a series of stress tests on the Continent’s largest financial institutions, investors have remained wary of the firms’ continued exposure to risky loans and sputtering economies like those of Spain and Greece.

Regulators have also pushed banks to shed unprofitable assets and protect against rising delinquent loans, and a proposed banking union for the euro zone is expected to lead to even greater scrutiny of balance sheets. Authorities say they want to ensure that banks meet stringent capital requirements outlined in new rules known as Basel III.

Under the rules, which are to come into force by 2019, firms must achieve a 7 percent core Tier 1 ratio, a measure of an institution’s financial health. Banks considered to be systemically important must hold an additional 1 to 2.5 percent in reserve.

As a result, banks have been pressing ahead to meet the capital demands. Last month, Deutsche Bank raised almost 3 billion euros through a rights issue specifically intended to improve its capital buffers.

The British bank Barclays has issued a number of contingent capital instruments, known as CoCos, which are intended to ensure that the firm’s core Tier 1 ratio stays above a certain level. A number of other banks, including Credit Suisse and BBVA of Spain, also have raised capital by this method.

The Swiss bank UBS, which announced a major reorganization last year, has a 10.1 percent core Tier 1 ratio. That is currently the highest figure among Europe’s largest banks, according to the data provider SNL Financial. Other big banks, including Deutsche Bank and HSBC, have ratios greater than 9.5 percent.

For Commerzbank, whose current core Tier 1 capital ratio of 7.5 percent is expected rise to 8.4 percent after its capital-raising effort is completed, the new funds will help to repay an 18 billion euro government bailout the firm received in 2009.

“The transaction marks the beginning of the federal government’s exit from Commerzbank,” the bank said in a statement. “The capital structure of the bank is improving considerably.”

The offering, the bank’s fifth since 2010, allows investors to buy 20 shares at 4.50 euros apiece for every 21 shares they already hold. The price represents a discount of about 55 percent on Commerzbank’s closing share price on Monday. The bank’s shares fell 3.8 percent in afternoon trading in Frankfurt on Tuesday.

As part of the deal, Commerzbank is reportedly in talks to sell 5.7 billion euros of British property loans to the American bank Wells Fargo and the investment firm Lone Star.

More capital-raising moves are expected. British banks, for example, must raise a combined £25 billion ($38 billion) by the end of the year, according to local regulators. That includes potentially raising up to £1.8 billion, according to banking analysts at Barclays, for the small British lender Co-Operative Banking Group, which was downgraded to junk status last week by Moody’s Investors Service over concerns about an increase in delinquent loans.

Commerzbank, Deutsche Bank, Citigroup and HSBC are handling Commerzbank’s capital-raising effort, which the bank said would close on May 28.

Article source: http://dealbook.nytimes.com/2013/05/14/commerzbank-to-raise-3-2-billion-in-new-capital/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: delinquent loans, european banks, regulatory pressure

DealBook: Commerzbank to Raise Capital and Repay Taxpayer Money

March 13, 2013 by NewsMaker Leave a Comment

Michael Probst/Associated PressThe Frankfurt headquarters of Commerzbank, Germany’s second-largest lender.

FRANKFURT – Commerzbank said on Wednesday that it would repay a taxpayer bailout and ask shareholders for more capital, moves that would reduce the German government’s influence over the bank but also dilute current shareholders.

Commerzbank, Germany’s second-largest bank after Deutsche Bank, said it would raise 2.5 billion euros ($3.3 billion) by selling new shares to existing shareholders. The issuance of new shares will reduce the German government’s stake in the bank to less than 20 percent, from 25 percent. As a result, the government would no longer have the right to veto management decisions.

The bank said it would use the money to bolster its capital reserves. Martin Blessing, the chief executive of Commerzbank, said the transaction signaled “the beginning of the end of the Federal Republic’s engagement in Commerzbank.” He said Commerzbank would save on interest by repaying its government loans earlier, and would be able to resume paying shareholder dividends sooner than expected.

Shareholders were disappointed, however, because the new shares would dilute the value of existing equity. Commerzbank shares fell more than 9 percent in Frankfurt trading on a day when German stock prices were otherwise flat.

The transaction is the latest effort by Commerzbank, and European banks in general, to move back to a semblance of normality after the turmoil of the last five years. While Germany has a reputation as an industrial powerhouse aloof from the financial crisis, almost all of its large banks are struggling and many would be bankrupt without public support. Moody’s has a negative rating on the German banking sector.

German and European banks still have a long way to go before the financial system can be considered healthy. Many banks remain dependent on the European Central Bank for cash, and credit remains scarce in much of the euro zone. Many banks are barely profitable or not at all. Commerzbank reported a loss of 716 million euros in the fourth quarter of 2012, compared with a profit of 316 million euros in the period a year earlier.

Commerzbank said it would pay back the remaining 1.6 billion euros of the 16.4 billion euros it received from the government in 2008 and 2009. That sum does not include an additional 3.7 billion euros in aid that the German government provided to the bank by buying its shares.

Commerzbank will also repay 750 million euros to the German insurer Allianz. The loan, a so-called silent participation, grew out of Commerzbank’s acquisition of Dresdner Bank from Allianz in 2008.

The bank said it would determine the number of new shares to be issued and the price in mid-May. Before that, Commerzbank will also consolidate existing shares, with one new share equaling 10 old shares. Deutsche Bank, Citigroup and HSBC will serve as underwriters.

Shareholders must approve the capital increase at the annual meeting, which is scheduled for April 19, about a month earlier than planned.

Commerzbank will use the cash raised to meet new regulations, known as Basel III, that require banks to increase the amount of capital they hold in reserve. Although the rules do not take full effect until 2019, banks are already under market pressure to comply.

Article source: http://dealbook.nytimes.com/2013/03/13/commerzbank-to-raise-more-capital-and-repay-taxpayer-money/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: capital reserves, european banks, martin blessing

News Analysis: In Europe, Focus Begins to Shift to Speed of a Recovery

December 30, 2012 by NewsMaker Leave a Comment

A year ago, many people seriously doubted whether the euro would still exist by now. On the threshold of 2013, the debate is more about how long it will take for the euro zone economy to recover and what must be changed to avoid future crises.

Europe still has plenty to worry about. Economic output is shrinking in nine of the 17 nations that use the euro. European banks remain weak, and many have yet to confront their problems decisively.

Many businesses in Spain, Italy and other distressed countries cannot obtain credit, hampering a recovery.

On top of that, with national elections coming in Italy in February and Germany in September, leaders there may be more focused on the narrow concerns of their voters than the cause of European unity.

“At the moment the crisis seems to have calmed down somewhat,” Jens Weidmann, president of the Bundesbank, the German central bank, said in an interview with the Frankfurter Allgemeine newspaper published on Sunday. “But the underlying causes have by no means been eliminated.”

But consider some of the doomsday situations that did not occur in 2012. Greece did not leave the euro zone or set off a financial disaster like the one sparked by the collapse of Lehman Brothers. Spanish and Italian bond yields, rather than succumbing to contagion from Greece, retreated from levels that had threatened their governments with bankruptcy. And nowhere did populist, anti-euro political parties gain the upper hand.

All of these things could still happen, but the probability of catastrophe has fallen substantially because of a fundamental change in the way that European leaders are dealing with the crisis.

Under its president, Mario Draghi, the European Central Bank has promised to buy the bonds of countries like Spain, if needed, to control their borrowing costs.

That vow, which cooled the crisis fever of late summer, bought time for elected officials to begin creating the superstructure needed to make the euro more credible, including a permanent fund for rescuing stricken member countries and a unified system for overseeing banks.

“In 2012, the euro area leaders finally got the diagnosis right,” said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. “It wasn’t about Greek debt or Irish banks. It was about some very fundamental design flaws that needed to be fixed. That’s what markets were looking for.”

Even though European political leaders seem to argue endlessly, they have made enough progress to keep speculators at bay. Investors surveyed by UBS recently ranked the chances of a breakup of the euro zone well behind the potential danger from a combination of spending cuts and tax increases scheduled to take effect in the United States next month or a hard landing by the Chinese economy.

“There is more of a perception that nobody is better off if this thing breaks up,” said Richard Barwell, senior European economist at Royal Bank of Scotland.

The question in 2013 will be whether a fragile calm in Europe holds long enough for economic growth to resume, for banks to rebuild their balance sheets and for leaders to make progress creating a more durable currency union.

Here are some of the main things to watch:

ECONOMIC PERFORMANCE The euro crisis, arguably, will be over the day that all of the stricken countries are generating economic growth. Ireland, one of the first countries to get into debt trouble back in 2008, might already have turned the corner. Its gross domestic product grew 0.2 percent in the third quarter from the period a year earlier.

Spain, Italy and Portugal are still deep in recession, and Greece is in a de facto depression. But there are some signs of progress in one crucial measure: trade balances. All of the distressed countries have increased exports this year and reduced trade deficits. That is a sign their products have become more competitive on world markets.

Article source: http://www.nytimes.com/2012/12/31/business/global/in-europe-debate-slowly-shifts-to-speed-of-a-recovery.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bond yields, european banks, european unity

Greece Announces Terms of Bond Buyback to Slash Debt

December 3, 2012 by NewsMaker Leave a Comment

While the buyback had been expected, the prices offered by the government were above what the market had forecast, with a minimum price of 30 cents on the euro and a maximum level of 40 cents, for a discount of 60 to 70 percent.

Analysts expect that the average price will ultimately be 32 to 34 cents on the euro, which would represent a premium of 4 cents above the level where the bonds traded at the end of last week.

Pierre Moscovici, the French finance minister, played down concerns that the Greek debt buyback might not go as planned. “I have no particular anxiety about this,” Mr. Moscovici said Monday at the European Parliament ahead of the meeting of euro zone finance ministers to discuss Greece in Brussels. “It just has to be very quick.”

A successful buyback is critical for Greece. The International Monetary Fund has said that it will lend more money to Greece only if it is reasonably able to show that it is on target to achieve a ratio of debt to annual gross domestic product of less than 110 percent by 2022.

Greece will have at its disposal €10 billion, or $13 billion, in borrowed money from Europe. Investors who agree to trade in their Greek bonds will receive six-month treasury bills issued by Europe’s rescue vehicle, the European Financial Stability Facility. The offer will close Friday.

If successful, the exchange would retire about half of Greece’s €62 billion in debt owed to the private sector. The country still owes about €200 billion to European governments and the I.M.F.

Analysts believe that as much as €20 billion worth of bonds held by Greek, Cypriot and other government-controlled European banks will agree to the deal at a price in the low 30s. That would mean that in order to complete the transaction, hedge-fund holdings of €8 billion to €10 billion in bonds would have to be tendered at a price below 35 cents. Any higher price paid on the bonds would mean that Greece would have to ask its European creditors for extra money — an unlikely outcome at this stage.

Perhaps oddly, for a country that is so close to bankruptcy, Greek bonds have become one of the hot investments in Europe. Large hedge funds, like Third Point and Brevan Howard, have accumulated significant stakes starting when the bonds were trading in the low teens this summer. Shorter-term traders have been snapping up bonds at around 29 cents in order to make a quick profit by participating in the buyback.

In a research note published Monday, analysts at Nomura in London said it was “reasonable and likely” that enough hedge fund investors — especially those who might be more risk-averse and have a shorter perspective — would agree to the deal at a price below 35 cents.

But there are also a number of foreign investors looking to the longer term who may decide to hold onto a major proportion of their holdings in the hope that the bonds will rally even more after a successful buyback.

“I think the bonds could go to as high as 40 cents in a non-exit scenario,” said Gabriel Sterne, an analyst at Exotix in London, referring to the now widely accepted consensus view that Greece will not leave the euro zone anytime soon.

Comments by Chancellor Angela Merkel reported in the German news media over the weekend raising the possibility that European governments might offer Greece debt relief in future years have also encouraged bondholders, a number of whom expect Greek bond yields to trade more in line with those of Portugal in the coming years. But the risk to such an approach is substantial. No longer will there be the prospect of a buyback to push up the prices of Greek government bonds.

Spain, which is also seeking to overcome crippling debt problems, began the process Monday of formally requesting €39.5 billion in emergency aid to recapitalize its banks. It also announced that a tax amnesty had yielded only €1.2 billion, less than half what the government had expected.

The request for emergency aid was being sent to the authorities managing the euro-zone bailout funds, according to Spanish officials, who added that no further approval would be needed from ministers meeting in Brussels.

Article source: http://www.nytimes.com/2012/12/04/business/global/greece-announces-terms-of-13-billion-bond-buyback-to-slash-debt.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: european banks, moscovici, treasury bills

DealBook: BNP Third-Quarter Profit Doubles to Hit $1.7 Billion

November 8, 2012 by NewsMaker Leave a Comment

Mal Langsdon/ReutersBNP, based in Pairs, said it reached its capital target early.

PARIS — BNP Paribas, the largest French bank, said on Wednesday that its net income more than doubled in the third quarter, lifted by a strong performance in its investment banking unit.

Profit rose to 1.3 billion euros ($1.7 billion) in the three months that ended Sept. 30 from 541 million euros a year earlier. The corporate and investment banking unit posted a pretax profit of 732 million euros, up 7.3 percent, as the fixed-income and equity and advisory segments performed well.

The bank noted that results were flattered by comparison to the year-earlier period, when a sovereign debt crisis in Greece and other countries had a significant effect on results of European banks, as American money market funds reduced loans to the region.

DealBook: French Banks Prepare to Pull Out of Greece

August 29, 2012 by NewsMaker Leave a Comment

John Kolesidis/ReutersA branch of Geniki in Athens. Greece’s battered banks are consolidating in an attempt to cope with the country’s debt crisis.

PARIS — France’s biggest banks are preparing to pull out of Greece in the coming weeks, the latest large international business to abandon the country as it grapples with a debilitating recession and nagging questions about its future in the euro zone.

Société Générale said Wednesday that it was in advanced discussions to sell its 99.1 percent stake in Geniki Bank, one of Greece’s biggest financial institutions, to Piraeus Bank of Greece. On Tuesday, Crédit Agricole, another large French lender, said it expected to sign a deal to sell its troubled Greek arm, Emporiki Bank, to another Greek bank in a matter of weeks.

The French banks had embarked on a strategy of expanding in Greece and other Southern European countries when times were good, moving to take advantage of buoyant housing markets and rapid economic growth. When a deterioration in Greece’s finances helped ignite the European debt crisis three years ago, Société Générale and Crédit Agricole wound up being among the most exposed of any European banks to Greece.

Their earnings were hit last year when a swath of Greek government bonds they had invested in turned toxic as the crisis deepened. At the same time, losses mounted at their Greek operations as the country’s economy plunged, triggering a surge of defaults on loans to consumers and businesses. Fears that Greece could exit the euro had also raised uncertainty for the banks, leading them to follow in the footsteps of other large international companies like Carrefour, the big French supermarket chain that two months ago sold off all of its Greek operations.

Prime Minister Antonis Samaras of Greece has been on a charm offensive in European capitals recently to reinforce the message that Greece wants to stay in the euro zone, despite renewed calls from some German politicians for it to leave and a resurgence in bets by investors that a Greek exit from the currency union may at some point be inevitable.

To show that his government means business, Mr. Samaras is scrambling to get politicians in his coalition government to agree quickly to 11.5 billion euros, or $14.4 billion, worth of new austerity measures for 2013 and 2014 in order to secure a loan installment of 31.5 billion euros, which is needed to keep Greece’s economy afloat.

Greece’s so-called troika of lenders — the International Monetary Fund, the European Central Bank and the European Commission — are set to issue a crucial assessment in the coming weeks of how far off track the country is in sticking to its promises to reduce a mountain of debt and a high deficit.

Even if the report were positive, Greece’s real economy is still struggling: The government estimates growth will contract by a staggering 7 percent this year, worse than the 4.8 percent contraction forecast earlier this year by the I.M.F.

With such prospects, Société Générale and Crédit Agricole determined that it would be better to cut their losses.

Société Générale bought Geniki Bank in 2004. It had been bleeding money for the last several years, with losses of 796 million euros in 2011 and 411 million euros in 2010. Emporiki Bank has been a drag on Crédit Agricole’s earnings almost since the French bank acquired it in 2006. In the first nine months of 2011, Emporiki posted a loss of 954 million euros, and Crédit Agricole has pumped about 2 billion euros into the bank in the last two years to increase its capital.

The Greek banking sector is grappling with large loan losses as thousands of businesses go belly up each month and consumers, racked by salary cuts and tax increases required under the terms of Greece’s international bailout, are left unable to repay their debts.

Greek banks also took a huge hit after they agreed, with banks outside the country, to take a 50 percent loss on their vast holdings of Greek government debt. Recently, the E.C.B. has refused to lend directly to Greek banks because the quality of the collateral they have to offer has become extremely poor. The banks must instead borrow money from the Greek central bank, at a higher interest rate than what the E.C.B. would charge, adding to their burden.

Article source: http://dealbook.nytimes.com/2012/08/29/french-banks-prepare-to-pull-out-of-greece/?partner=rss&emc=rss

Filed Under: Business News Tagged With: european banks, european capitals, greek government

Stocks and Bonds: European Banks Appear Wary of Lending to Each Other

December 29, 2011 by NewsMaker Leave a Comment

Opinion »

Greenhouse: Thinking About the Court

For most justices, most of the time, the relationship between ideology and outcome is oblique.

Article source: http://feeds.nytimes.com/click.phdo?i=09d3eb6fcc6454fbfa318f71e9bbc86b

Filed Under: Economy News Tagged With: european banks, greenhouse, stocks and bonds

Olympus Inquiry Said to Include Banks

November 26, 2011 by NewsMaker Leave a Comment

Olympus, a Japanese endoscope and digital camera maker, admitted this month that it kept investment losses off its books for two decades as part of a cover-up. But many questions remain about how Olympus managed to obscure the losses for so long and how much outside help the company may have received.

According to the person close to the investigation, who was not authorized to speak publicly, regulators are looking into whether managers handling Olympus’s accounts at several European banks provided inaccurate or misleading statements of the company’s accounts.

The investigation is examining whether the bank statements were then used by Olympus to generate financial statements that misstated the company’s true health, the person said.

He refused to name the banks, saying investigations were still continuing.

Allegations of complicity by Olympus’s bankers come as the company’s recently sacked president, Michael C. Woodford, returned to Japan from his native Britain to meet with local authorities who are investigating Olympus’s finances — and to confront the company’s board over his firing.

Mr. Woodford was fired in mid-October after he questioned more than $1.4 billion in irregular merger payments made before his tenure. Olympus has since admitted that those payouts were part of its cover-up of past losses.

Mr. Woodford, who remains a director, has demanded that the entire board resign over the cover-up. He has also offered to return to the helm of the company to help it restructure and clean up its books.

At the board meeting Friday at company headquarters, which Mr. Woodford described as tense, there was no talk of reinstating him as president, he said, adding, “The directors know that they have to leave to bring credibility back to the company.”

Under pressure, Olympus said Thursday the board was indeed prepared to step down once the company was on the road to recovery, though the company gave no timeline for the resignations. Also on Thursday, three executives who Olympus says were behind the cover-up resigned from the company.

Although Olympus has not detailed the system by which it hid the losses, it is thought to have used a once common accounting maneuver known as “tobashi.” In tobashi, translated loosely as “to blow away,” a company hides losses on bad assets by selling those assets to other companies, often dummies, only to buy them back later. That allows the company with the bad assets to temporarily mask losses, and pay them off when company finances improve.

Those payments are usually disguised as acquisition fees or write-downs.

At Olympus, under scrutiny are $687 million in fees paid in 2008 to an obscure financial adviser in the Cayman Islands for Olympus’s acquisition of the British medical equipment maker Gyrus — fees equal to about a third of the $2 billion acquisition price and more than 30 times the going rate for such services.

According to an e-mail exchange dated Oct. 6 between Mr. Woodford and Olympus’s compliance officer, Hisashi Mori, the company used two European banks to transfer funds to Axam, the Gyrus acquisition adviser incorporated in the Cayman Islands.

The e-mail, provided by Mr. Woodford, said Olympus used one bank to remit $210 million and the other to remit $410 million.

One of the banks requested a copy of the underlying agreement between Olympus and Axam, according to the e-mail. Such a request is unusual and a sign that the bank had concerns about the payment. It is unclear, however, if either bank flagged financial regulators to the transaction.

Neither bank has been accused of wrongdoing, and neither has been identified as the subject of an investigation by Japanese authorities.

Yoshiaki Yamada, a Tokyo-based spokesman for Olympus, said he could not comment on details of ongoing investigations or on the authenticity of the e-mails provided by Mr. Woodford. The company has threatened to sue its former president for leaking internal documents, however.

Tobashi was made infamous by Yamaichi Securities, which hid over $2 billion in losses before collapsing in 1997. Yamaichi was then Olympus’s preferred broker.

The brokerage firm also previously admitted to making improper payments of about 1 billion yen to Olympus to cover stock market losses, part of a scandal that involved nearly every big company in the country.

Article source: http://feeds.nytimes.com/click.phdo?i=67c8ebb518139099da50dafe04eccf15

Filed Under: Business News Tagged With: bank statements, credibility, european banks

DealBook: Qatar Bets on Hobbled European Banks Dexia and KBC Group

October 12, 2011 by NewsMaker Leave a Comment

Yves Herman/ReutersPrecision Capital, a Qatari-backed firm based in Luxembourg, agreed to buy KBL European Private Bankers for $1.4 billion.

Qatari investors are on the hunt for deals across Europe after agreeing to buy the private bank operations of the troubled European firms Dexia and KBC Group.

The deals mirror similar moves in 2008, when banking heavyweights like Barclays and UBS turned to Mideast sovereign wealth funds for huge infusions of cash to recapitalize their operations after Lehman Brothers collapsed.

On Monday, Precision Capital, a Qatari-backed firm based in Luxembourg, agreed to buy KBL European Private Bankers for $1.4 billion. The figure is $400 million less than a previous offer from the Hinduja Group of India, which fell through in March for regulatory reasons.

DealBook: Morgan Tries to Quell Rumors About Its Holdings

October 5, 2011 by NewsMaker Leave a Comment

Jin Lee/Bloomberg NewsJames Gorman, chief of Morgan Stanley, tried to address rumors about the company’s stock.

Morgan Stanley executives are battling a daily barrage of rumors and nay-saying to try to stem a sharp slide in the company’s stock.

It is a war that is being fought in large part in the shadows: against anonymous blogs and market whispers, but also against undefined fears about exposure to troubled European banks. While those worries are common to all the big Wall Street banks, Morgan Stanley, as the smallest, is perhaps the most vulnerable among them.

In response, Morgan Stanley executives have been rallying employees and talking to the company’s biggest shareholders. The campaign culminated late on Monday, with the Mitsubishi UFJ Financial Group, which owns approximately 22 percent of Morgan Stanley, publicly reaffirming its support for the company.

The push may have helped on Tuesday. Shares of Morgan Stanley rose 12.4 percent, after falling nearly 29 percent since the beginning of September. Morgan and other banks were primarily buoyed on Tuesday by a suggestion that European officials would look at bank recapitalizations.

Nonetheless, there has been a bloodbath in bank stocks. Morgan Stanley is down 48.5 percent for the year; Goldman Sachs has fallen 44 percent; and Bank of America is off about 57 percent. And the cost of insuring Morgan Stanley’s debt for five years through credit-default swaps, though it eased on Tuesday, remains at levels that were seen during the financial crisis.

Morgan Stanley’s war-roomlike approach to market volatility highlights the difficulties of stamping out rumors in a world of instant, and often anonymous, information.

Its latest round of troubles began on Friday morning before the markets opened at 9:30 a.m. Zero Hedge, a well-read and controversial financial blog, linked to a Bloomberg News article that noted Morgan’s credit-default swap spreads had been widening. The Zero Hedge post also directed readers to a previous Zero Hedge article that pegged Morgan Stanley’s net exposure to French banks at $39 billion, about $12 billion more than the bank’s current market capitalization, reigniting fears about its exposure.

It was a potent cocktail of information. The company’s stock opened down more than 3 percent, prompting a flood of calls to Morgan’s investor relations and press offices.

Calling Zero Hedge for damage control was not an option. The post was written by an anonymous blogger who goes by the name of “Tyler Durden,” a character in the movie “The Fight Club,” and the Web site does not give readers a way to readily reach its writers.

Adding to Morgan Stanley’s woes, Friday was the last day of Morgan Stanley’s third quarter. The company is set to release its earnings in a few weeks, and securities laws limit what it can say about its financial condition. Unable to reach Zero Hedge, Morgan Stanley’s investor relations department went into overdrive, quickly pulling together talking points for callers that were circulated to both media and investor relations staff members.

According to the talking points, reviewed by The New York Times, the numbers cited by Zero Hedge “represent gross asset positions and thus do not reflect the benefit of collateral or other hedges and protection, and the more relevant exposure to consider is the net exposure.”

So what is its net exposure? The company was limited in what it could say because of the pending earnings announcement. To address this point, staff members were told to direct callers to pre-existing stock research. “Analysts estimate that the actual net exposure is meaningfully lower,” the talking points read.

In particular, they cited a recent report by Brad Hintz, an analyst with Sanford C. Bernstein Company, who estimated that Morgan’s “total risk to France and its banks is less than $2 billion net of collateral and hedges.”

Zero Hedge could not be reached for comment.

Despite Morgan Stanley’s efforts, the stock ended on Friday down about 10 percent, at $13.51, its lowest close since the fall of 2008 and the depth of the financial crisis. The stock price was particularly frustrating to James P. Gorman, the company’s chief executive since early 2010. He has been leading the effort to rebuild the company; he even bought 100,000 shares of Morgan Stanley in early August at approximately $20 a share.

On Friday, Mr. Gorman shared his concerns with senior executives at Mitsubishi, conversations that culminated with discussions over the weekend between Mr. Gorman and Nobuyuki Hirano, his counterpart at the Japanese bank. The two men discussed the market rumors, concurring that they ran contrary to what they felt was going on in the market, said two people briefed on the conversation.

The company is expected to report third-quarter results in two weeks. Those results, these people said, are solid in light of the recent stock market rout. Analysts polled by Thomson Reuters estimated that the bank would report a profit of 36 cents a share.

Mr. Gorman and Mr. Hirano agreed that it would be helpful if Mitsubishi issued a news release expressing its support. That did not come, however, until Monday after the close.

Early on Monday Mr. Gorman decided to speak out himself. “In fragile markets, where fear triumphs over common sense, these things are bound to happen. It is easy to respond to the rumor of the day, but that is not usually productive,” he wrote in a note to employees. “Instead we should let balanced third parties do their own analysis and let the facts speak.”

On Monday, despite Mr. Gorman’s efforts, the company’s stock tumbled 7.7 percent.

Six minutes after the close, Mitsubishi issued its statement. “In response to recent market volatility M.U.F.G. wishes to reiterate that we are firmly committed to our long-term strategic alliance with Morgan Stanley. The special relationship we have formed remains core to our global business strategy.”

Initially, the statement seemed to have little effect on the stock. The cost to insure Morgan Stanley’s bank debt with credit-default swaps on its debt continued to rise Tuesday morning, but then fell back, according to Markit, a financial information company. Its shares closed at $14.01, up $1.54, or more than 12 percent.

“Mitsubishi’s announcement was the equivalent of a Japanese firm saying you are part of the family,” Mr. Hintz said.

Article source: http://feeds.nytimes.com/click.phdo?i=029b0b6887c80c81a8de4b3045403923

Filed Under: Business News Tagged With: bloodbath, european banks, market whispers