Morgan Stanley the Fifth Horseman of Derivatives Apocalypse

It is well-known that four of the too-big-to- fail (TBTF) U.S. banks—Citibank, JPMorgan Chase, Goldman Sachs, and Bank of America—are sitting on 91% of the $192.2 trillion in derivatives “officially listed” on the books of FDIC-insured commercial banking units. When the derivatives on the books of their holding companies are added, these four have 93% of $242 trillion in nominal exposure to derivatives.

But a column by Pam and Russ Martens warns that the exposure of a fifth TBTF institution, Morgan Stanley, poses an even greater risk to American households. Morgan Stanley holds $31 trillion in derivatives, including $1.6 trillion in credit derivatives.  But unlike the other banks holding the lion’s share of derivatives, Morgan Stanley is far more involved in retail brokerage accounts and has 15,771 retail brokers as of July 2015 data from the Office of the Comptroller of the Currency. With $404 billion under management, Morgan Stanley has more “mom and pop” clients, investing their retirement and other personal savings, which means that a blowout of its derivatives portfolio can have devastating consequences for an unspoken number of households.

During the 2008 blowout, Morgan Stanley got more than $2 trillion in bailouts from the Fed (they got one lump sum bailout of $107.3 billion on Sept. 29, 2008 alone).  Since July 2015, Morgan Stanley stocks have plunged by 38%.