As of the end of the first quarter, Morgan (MS) was positioned to profit if the government debt of Portugal, Ireland, Italy, Greece and Spain fell in value, essentially betting that financial condition in Europe’s weakest nations is set to get worse. Morgan’s biggest “bet” is against Portugal. But it would also benefit if prices of the government debt of Italy or Spain fell as well.

Overall, the “bet” isn’t particularly large compared to the size of the firm and its other positions. And it appears Morgan could lose money if the debt of France and other European nations drops in value. Analysts and investors say they aren’t focused on bet against Portugal and the other weaker European nations as a major risk, or source of profits, for the firm.

But the bet against the so-called PIIG nations is significant because it appears to be a shift for Morgan in its thinking on Europe. Back in September, shares of Morgan plunged on fears that it would lose tens of billions of dollars if the financial condition of Europe worsened. What’s more, it’s a relatively rapid shift. As recently as the end of 2011, Morgan Stanley had billions of dollars riding on the fact that he financial condition of the governments of Portugal and others would improve. The disclosure came today as part of the announcement of Morgan’s first quarter earnings, which were better than expected.

The “bet” is a series of complex transactions including direct holdings of government bet, exposure from transactions the firm has made with counterparties and derivatives such as credit default swaps. Morgan appears to have sold just over a $1 billion in CDS contracts, essentially bond insurance that the firm would have to pay out in the case of a default, against the debts of Portugal and the other so-called Euro peripherals. The firm has also more than doubled its direct bet against the debts of the countries in the past quarter. What’s more, the company seems to have significantly cut back its trading with those foreign governments.

Overall, Morgan has $618 million bet against the Euro peripherals. More than half of the bet is against Portugal. According to a note in its financial statements, Morgan Stanley significantly reduced its exposure to Italy in early January. A Morgan spokesperson declined to comment.

It’s not clear how well the bets are doing. Portugal bonds, after plunging in value early in the year, have nearly recovered all of their losses. What’s more, it appears Morgan isn’t completely shying away from Europe. The bank now has a $4 billion exposure to France, more than double what it had three months ago.