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Morgan Stanley shares drop over 22 percent

The Baltimore Sun

NEW YORK - Morgan Stanley Inc. shares plunged more than 22 percent yesterday as investors questioned the investment bank's future even with a major investment from Japan's Mitsubishi UFJ Financial Group.

Yesterday marked the fifth straight day that shares of the nation's second-largest investment bank have been pummeled. The latest round of selling was triggered on renewed fear that Morgan Stanley's credit ratings might be cut, a move that threatens earnings power.

The potential for a downgrade heightens pressure on chief executive John Mack, who spent most of yesterday meeting with major investors to reassure them about the firm. Most of Wall Street remains painfully aware that many of Morgan Stanley's rivals have either collapsed or been sold off as confidence in the financial industry plummeted.

And analysts agreed that Morgan Stanley's shares have come under intense pressure - more on fear than any real problems with the bank. Investors wiped away about $18 billion of value in Morgan Stanley in the past week, with shares closed down $2.77, or 22.3 percent, to $9.68 after sinking to a 52-week low of $6.71 earlier in the session.

The steep drop in the investment bank's market value is reminiscent of what happened to Lehman Brothers and Bear Stearns, said Ladenburg Thalmann analyst Richard Bove in a research note. Short-selling has been pointed to as a reason Lehman filed for bankruptcy protection and for Bear Stearns being acquired by JPMorgan Chase & Co. in a fire sale.

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