Morgan Stanley executives are battling a daily barrage from speculators and nay-sayers who have pushed down the value of MS shares in recent days - more so that rival investment bankers, with the possible exception of BAC.  It's  a war no doubt that is being fought, though in large part it's in the shadows.  Like anonymous blogs and market whispers, as well as undefined fears about the firm's exposure to troubled European banks. While those worries are common to all the big Wall Street banks, Morgan Stanley, as the smallest, is perhaps most vulnerable among them.   James Gorman, Morgan Stanley's chief, tried to address rumors about the company’s stock.   Morgan Stanley executives have been rallying employees and talking to the company’s biggest shareholders.  The campaign culminated earlier this week with a strong endorsement from Mitsubishi UFJ Financial Group, which is MS's largest shareholder with a 22% stake. Morgan Stanley’s war-roomlike approach to market volatility highlights the difficulties of stamping out speculation 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 ("CDS") 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. That was enough to encourage investors to sell MS shares - as the company’s stock opened down more than 3%, which prompted a flood of calls to Morgan’s investor relations and press offices. Morgan Stanley may have considered going to Calling Zero Hedge for some damage control, but that was wasn't an option.  A post on the site - by anonymous blogger "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. It didn't help Morgan Stanley that last Friday was the last trading day in the 3d quarter.  The company's set to release its earnings in a few weeks, and securities laws limit what it can say about its financial condition.  This means it;s unable to reach Zero Hedge, and so Morgan Stanley’s investor relations ("IR") department has gone into overdrive, quickly pulling together talking points for callers and disseminated among the media and investor relations staff members.

The talking points, obtained by the NYTimes, 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.”

Which begs the question:  what is Morgan Stanley's net exposure?  Unfortunately, company officials are limited in what they may say because of the pending earnings announcement. Staff members, instead, 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 Sanford Bernstein analyst Brad Hintz who estimated that Morgan’s “total risk to France and its banks is less than $2 billion net of collateral and hedges.”   Will this reassure investors or creditors? There's no way of knowing, at this point in time.  All we have is Morgan Stanley's word, and the word of outside analysts and a lot of speculation.    [dealbook, 10/5/11]]