Morgan Stanley struggles to quell risk rumors

The note earlier today by Morgan Stanley CEO Jim Gorman addressing what he called “confusion and misinformation” about the firm wasn’t too reassuring.  It’s not likely to quell the rumors about the firm, nor does it do much to improve Gorman’s stature.

By penning such a short memo (a mere 218 words), Gorman clearly did not want to appear to overreact to rumors, but he did not want to leave them unchallenged, either.  He didn’t reply directly to the “misinformation” but instead offered up a few encouraging points from research analysts who cover the firm, along with a plug to employees to “stay focused on your job.”

But pointing to supportive analyst reports is of limited use.  For one thing, the market has already weighed the analysts’ views and still marked down Morgan Stanley’s shares.   The firm also has to be careful about endorsing a particular analyst.  After all, a supporter today could be a critic tomorrow.  And analysts themselves seldom welcome such endorsements, preferring to keep an impartial distance from the companies they cover.

Time will tell if Gorman’s low-key approach pays off.  That approach didn’t help during the 2008 banking crisis, when banks were slow to respond to the gathering storm.  And worse, when they did reply, their statements were vague and, in many cases, too optimistic.

Facts, not cheerleading, put a stop to rumors.  The only thing that will lift the cloud from Morgan Stanley is detailed information on the firm’s exposures in Europe, liquidity and earnings.  So there will be a lot riding on the firm’s earnings announcement in about two weeks.  If rumors persist and the shares slide further, Gorman might opt to release the financial results earlier.


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