Will Morgan Stanley go under?

Is the Morgan Stanley investment bank the next one threatened with bankruptcy? Bets are being taken on this. And what does this mean for the new wave of guarantees announced by the G7 on Saturday?

From The Guardian:

The collapse in Morgan Stanley's shares late last week has led to a wave of bets being taken on the blue-chip investment bank failing to meet its financial obligations. Investors fear that the bank's debt would return only a fraction of its face value in the event of a bankruptcy filing and are pushing up the cost of insuring its bonds against default.

The annual cost of insuring $10m (£5.8m) Morgan Stanley senior bonds against default rose on Friday to $2.8m, up from a price of $1.9m on Thursday. Such an insurance contract, known as a credit default swap (CDS), can now only be purchased in relation to Morgan Stanley when payment is provided upfront — further indication of the precariousness of the bank's perceived solvency prospects.

The 47% jump in the price of credit protection — mirrored on Friday by a 22% slump in Morgan Stanley's share price — came as the complex unwinding process for CDSs linked to failed US rival Lehman Brothers provided further cause for concern.

The payout price for those financial firms that sold insurance, sometimes called "protection", on Lehman credit was set on Friday night at 91.4 cents in the dollar — much higher than market expectations.

Meanwhile, Morgan Stanley is not the only big-name institution that is on the critical list in the credit derivatives market. There are now 135 companies where protection can only be bought on payment upfront, according to price data firm Markit. This compares with a previous peak of 67 in March, suggesting the number of large corporations on the brink of collapse has more than doubled.