How bad is it at Morgan Stanley?

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Is Cruz's exit an indication of worse things to come?

Maybe: Dick Bove, a Punk, Ziegel & Co. analyst, told the Wall Street Journal that the removal of the high flying female co-president suggests MS will reveal something nasty when it unveils its 4Q results in a few weeks' time.

So far, Mack's movers and shakers haven't done too badly (at least compared with Citigroup and Merrill Lynch). At the start of last month Morgan Stanley said it suffered $3.7bn in trading losses in the first two months of this quarter, and its potential exposure totalled $6bn.

Staffing-wise MS also looks in fairly good shape compared to the likes of Merrill - while Stan O'Neal was adding thousands of people to Merrill's headcount this year, John Mack was trimming them; Morgan Stanley now has 7,500 fewer employees than in 2006.

Will this be enough to see off the sub-prime beast? On one measure, at least, the answer may be no. Research firm CreditSights released a report in October showing that in the third quarter Morgan Stanley had more hard-to-value and potentially toxic level-three assets than any other US brokerage - $90bn, vs $72bn at Goldman and $20bn at Bear Stearns.

Is Morgan Stanley about to do a Merrill Lynch and revise its losses substantially upwards? And if so, will John Mack be next in the firing line? Readers of the New York Times' DealBook

blog already claim Mack's hands are dirtier than he's letting on.

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