Banks, Brokerages
Getting Whacked; Morgan
Stanley Dean Witter
Denies Junk-Bond
Rumors
By Justin Lahart
Associate Editor
10/6/00 3:12 PM ET
In a bad day for almost the entire stock market,
bank and brokerage stocks have been particularly
lousy. And the rumor mill is churning.
Recently, the Philadelphia Stock
Exchange/KBW Bank Index was off 4.4% and the
American Stock Exchange Broker/Dealer Index
was off 5.8%.
One of the chief culprits for the sector's
performance has been Morgan Stanley Dean
Witter (MWD:NYSE - news).
Morgan today effectively denied rumors that it has
seen substantial losses on its junk bond desk. The
firm, echoing comments made in this morning's
Wall Street Journal, said the rumors of their losses
have been greatly exaggerated.
Morgan shares were lately trading down $7.63, or
8.3%, to $84.25. They had traded as low as $83.81
before the denial.
Wall Street was rife with chatter this morning that
Morgan was sitting on a huge amount of telecom
paper that has gone sour. To make matters even
worse, Morgan's co-head of high-yield bonds,
Dwight Sipprelle resigned yesterday. According to
fixed income sources, Sipprelle had been rumored
to be on the way out for a couple of weeks.
"The rumors are they had hundreds of millions in
positions like ICG (ICGX:Nasdaq - news)," said a
high-yield fund manager who spoke on the condition
of anonymity. "That company's blown up."
ICG, a competitive local exchange carrier (or
CLEC), has seen its business crumble of late. The
company had a significant amount of outstanding
junk bond debt and the stock was lately trading at
41 cents a share.
Why the Morgan Stanley rumors have filtered into
the stock market today is unclear. That
telecom-related junk bonds have been slipping is
not exactly news, and ever since Morgan missed its
third-quarter earnings estimates two weeks ago,
there's been talk of how they were hurt by
substantial junk bond losses. Perhaps it is
Sipprelle's resignation, reported in The Wall Street
Journal this morning, that did it. Or perhaps it is
just a market that, pummeled repeatedly over the
last month, is vulnerable to rumor.
Several traders have mentioned chatter of stocks
being sold to cover bond losses -- which is so
reminiscent of the Long Term Capital
Management crisis that it sounds made up.
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